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. 

[James Hamling]

Quote from @John Carbone:

Quote from @James Hamling:

Quote from @John Carbone:

Quote from @Nick H.:

This is a chaotic argument, idk why I'm getting involved. Few points:

1) Easier to look at broad averages here, i.e. all of the US, rather than 1 location. All of the US according to zillow is plateauing but has not dropped. Of course some markets have dropped, and some are continuing to rise. 

2) Definitely need to be looking at change from the peak like @Bruce Woodruff correctly indicated. i.e. (this is purely hypothetical) if 12 months ago avg price of homes was $1,000,000, and they rose to $1,500,000 6 months ago, and then back to $1,000,000 today - it's relevant to what we're talking about that prices went down 33% from the peak - and the buyers who bought at $1.5M are in rough shape. We don't simply say "prices are flat" and move on. 

I do not think it is very likely that prices are going to go down by 20%+. Maybe a short term pullback of 5 - 10% on average, sure, that's very possible. Let's think about how supply and demand are each affected by interest rates going up. Simple econ 101. 

Demand is obvious - demand decreases as rates rise because each dollar of home that you buy becomes less affordable w/ a higher interest mortgage. i.e the subset of people who can afford a given home goes down

Supply - supply decreases as rates rise because fewer owners want to sell their homes, i.e. the subset of people who choose to put homes on the market goes down

So as rates rise, demand decreases, but so does supply. These are the two ingredients to home prices (to prices of anything....). No one knows the magnitude of the demand shift and the supply shift, so we cannot "mathematically" say we know what is going to happen. But, as @James Hamling (and maybe others?) has pointed out - we do have a roadmap of real world data in the 1970's when there was high inflation and quickly increasing interest rates. Real estate did not go down - it went up. 

It went up because inflation was high (that increases the prices of all stuff... i.e. wages roughly doubled in the 1970's) and because while the increasing interest rates lowered demand for housing, it also lowered the supply of it (less ppl wanting to sell because they were locked into much lower rates). So you had lower demand / lower supply that may roughly cancel out, and you have a lot of inflation, which puts upward pressure on home prices. So homes went up >2X in the 1970's. 

Certainly, as others have mentioned, if unemployment goes way up, to say, 10% like it did in 2009 (I don't think anyone credible thinks that is a likely outcome), then that would be a big risk to home prices because defaults go up, rent ppl are able to pay goes down, etc. Outside of that, there aren't many big risk factors here of a large decline in residential RE. Anything is possible (as it has been in 2011, 2012, 2013, 2014, 2015, etc), but I don't see any data/economic based reasoning that would lead to me betting on a 20% decline. The main argument I've heard in this thread from the "crash" side (outside of anecdotal evidence) is that since rates have gone up so much, it only makes sense for prices to come down - but I (very respectfully - we're all on the same team here) disagree as that ignores the supply side dynamics of rate increases. 

Note: for full transparency, imo commercial/apartments probably higher risk of decline (compared to SFH's), given they're tied to shorter term debt

I don’t think it ignores the supply side. The demand shift from buyers is projected (by me) to be significantly more than the supply side. So there  will be excess inventory of homes and apartments. Americans find ways and adapt. Apart from places in California in this country, we don’t have people living on the streets in droves everywhere. People are living somewhere right now. If someone doesn’t own a home now, there’s nothing they can do to afford it other than make more money. The problem is, wages are not growing with inflation to have this be a similar situation in the 70s. Wages are growing for the very bottom rung of workers in society, but these people are also experiencing the brunt of inflation with higher food and energy prices along with rents doubling…plus they likely will now owe federal taxes due to bracket creeping. Buyers will find alternatives for living arrangements when they are pushed into a corner…it’s already happening. When demand craters, there will be supply and at the right price a transaction will occur. 

 This is based on emotion Joe, not facts or data, just your emotion and feelings of things, that's what makes it so wildly inaccurate and incorrect. 

We site a more then 6million unit net shortage right now today. That's an unprecedented number, it took an entire decade of the most epic slowdown, and total stop, in home building to create such an epic unit shortage. That is a massive absorption factor your not taking into any account. 

As for rentals, i have no idea how you can think there will be any excess of rental units, that's completely opposite of your own argument. people loosing homes RENT. Your own argument is one that makes MORE renters, yet you say there will be empty units all over, and empty homes. Where are all these people going? Your talking more then 18 million people. 

What will buyers do, they will adjust there purchasing. It's not to buy or not to buy, it's not an on or off switch. The adjust pricing level, that's it. This is Market Compression; buyers who were 400-500 move too 350-450, those who were at 300-350 move to 250-300, etc.. And as the bottom pricing rungs get stacked with buyers it RAISES competition, which raises pricing, for the lower strata of homes. 

And the whole time, rental rates run up, as more and more move into rental vs purchasing. 

AT END OF THE DAY, the risk vs reward is HEAVILY risk weighted for sellers in this environment where more then 75% have current rates of sub 4/5%. AND buyers are highly REWARD weighted, despite the higher rates, as it's the same cycle it has always been; a renter is paying matching or more for rents vs ownership, and getting nowhere with the payments, 0 equity, moving nowhere forward just burning $. The #1 reason people buy a home, SECURITY, via accruing equity. This will not change at 8% nor 14%. 

SO your premise is dead flat wrong, it's disconnected from the reality of social dynamics. Sellers have greatest risk, lowest reward, and hence they will wait it out, making much MUCH less sellers. Buyers will have exact same motives as ever, just adjusted budgets. 

Impacts will be seem in relation to areas household median incomes, far as which pricing levels have compression in what direction. An area with median incomes of $700k will have downward pressure on homes upward of $1m mark where areas of household median income of say $65k will see compression on pricing at entirely different levels, including much more upward pressure on the lowest pricing strata. 

It will NOT, I say again NOT be a universal downward pressure on home prices. There will NOT be mass vacant units. 

Print this out, save it, my e-mail and # is here. I have a greater then 90% certainty score on this forecast. That, in forecasting, is absolute certainty, as close to 100% as anything gets. I am trying to help people by sharing this, I get paid considerably for this advisory. I don't need to post such here, I am trying to help the "average Joe" from making a horrible mistake via following the loudest arm-chair quarterbacks and not knowing the difference from solid analysis and guesstimates. 

You are entitled to your opinion, but even you said a 10 percent drop is definitely in the cards coming up. So under your assumption, how does it make sense for someone to purchase a home right now, staring a 10 percent haircut in the mirror, 3 percent closing plus, add in liquidation costs of 7 percent if they need to sell, looking at 20 percent negative equity in 6 months according to your projected “market adjustments” 

let’s look at a median home buyer. $425k purchase price and putting 20 percent down. A true qualified buyer. So that’s 85k (plus 12k closing) let’s call it 100k out of pocket. They have a mortgage of $340,000 30 year fixed 7 percent rate. 

here is how it breaks down.

$2,262 payment (23k interest and 3k principle first year)

so after 2 years, they only get 6-7k in principle reduction (doesn’t even cover half of closing costs), the rest is “rent” payments. 

this doesn’t include property taxes or homeowners either which can vary significantly by location. 

I just don’t see the bull case to buy a home right now for personal use. 

That prospective homebuyer can take that 100k down payment and buy 20k of ibonds (if married) earning 2k a year and the other 80k at 4 percent in 1 year treasuries for $3200

that's $5,200 in risk free gains on the 100k down payment. Whereas their principle payment first few years is around $3500 a year buying into a market that is unstable and momentum shifting downwards. Telling people to buy right now is a disservice. 
 

 Your argument makes no sense in reality, it only applies if someone has 0 equity today, sells a home to buy another. Rates could be 1%, I'd tell that person there dumb. 

Here is reality. 

Take Jon and Jane Renter, they now have 2.5 kids a dog and a cat. They have outgrown apartments, there squashed like sardines in there rental townhouse, and rents keep rocketing up, and there now burning through something like $2,300mnth in rent to some Jag-Off landlord called "James", lol. 

For Jon and Jane Renter, does it make sense to buy a place, at a monthly cost of $2,500, which sits at less then 45% net monthly household income? ABSOLUTLY!     That price Jon and Jane Renter will pay on OWNING, is locked. They have now fixed there household expense. As rents average a 5% annual increase it is not long until market rents exceed there locked in household cost basis. Not to mention where 100% of there payment previously were just gone "poof" into the ether, now every time they pay a portion of that $ goes into a nice little retirement account we call "equity". 

Could they have waited another year or 2 to try and "time the bottom" sure, at what cost? It would cost $28k-$56k to wait things out to time the bottom, IF they got lucky enough to thread that needle with a Camel. 

Ok let's flip gears to Investors. 

Dave and Phil are middle class couple who had to move for a job relocation in 2014 and as things sucked to sell, they rented out there place instead. It all worked out so well that in 2017 they bought another home just for purpose of investment real estate and since have added 2 more, sitting on what is a heck of a portfolio, in there eyes, and by all rights Kudos for them, right. 

Dave and Phil are focused in GROWING there portfolio. They want to retire younger, achieve freedom, quit there day jobs and travel the world as food and travel bloggers. How to do such? It takes a whole year to save enough $ to buy a property, and at that they have to sacrifice some things they want to do int hat year. How to hit that goal before 60? 

Turns out that 2017 home, well they got one hell of a buy on it and even though the market has cooled down, they got in at $165k in 2017 but now, today, market price by comps has been around $345k. 

So, even as things have dipped in activity, and comps are coming in at nearly 4% off market highs, they know math and WISELY follow there REI Realtor and get set to sell. The sale goes through and "disaster" hit's, they sell it for a whole 5% off market highs, $327,750. What they owed on the property, a whopping whole $118,800. Dave and Phil just pocketed after selling expenses etc. $176,175.00. Rents keep pacing up and up, not at crazy 20% leaps but solid 5-10%. They wisely do a 1031 exchange and utilize that $176,175 to buy 3 properties, townhomes, in great performing areas, with 20-25% down. One is a nice 2br with a loft so down the road it has that value-add of turning loft into 3rd bedroom. The other 2 are 3br's in nice trendy areas that are really popular with a higher price point to buy a single family home making for a really strong tenant market.

Dave and Phil just turned there 1 performing property at $2,300mnth gross rents, into more then $6k in gross rents, without a penny out of pocket. And, as rents keep stepping up over time as rents do, the returns keep getting better. Tenants are now paying down 3 mortgages for Dave and Phil where months ago, just 1. There equitable returns are a multiplier. Not to mention the depreciation cycle they are back to enjoying which interestingly enough, there CPA says there set to save nearly $10k on there overall tax's end of the year from that little movement. 

This is the difference between novice investing, and professional, informed, strategic Real Estate Investing. Compounding returns beat interest rate hikes every day. Not to mention CONTEXT, taking the whole picture, all the details, the complete picture into account. 

Dave and Phil are at the x-mas retreat in Sachells, and have a cheers along the beach with a giggle "to not timing the bottom".

[Todd Dexheimer]

I don't believe we are going to see a crash. The US has only seen 4 down cycles with more than 15% overall price reductions over the past 250 years. The inventory is still near all time lows, there is currently a ton of equity in people homes, with most of the country holding long term debt at low interest rates. 

Will we see a slow down and maybe even a reduction in prices? Quite possibly. Interest rates and the shaky economy definitely will impact home values, but a reduction in prices causing a crash is less likely (not impossible). With that said, markets are local, so some may see a 15%+ correction. 

I've been investing since 2008 and have heard people calling for a crash since 2013. The second the market began to rise there was shadow inventory that was going to crash the market, then a double dip recession, then it was stocks go through a cycle every 6-8 years, so real estate will go down with it, then COVID, now this. Certainly, eventually, we are bound to see a crash, but most of the time it's just a small slow down/dip. 

[Carlos Ptriawan]

Quote from @Eric Bilderback:

@JD Martin

Thats some solid push back.  I have no metrics.  But our trade deficit is very high, and I think there are some funny numbers going on (but if you pushed me I can't prove that).  I could be wrong here and I will look into this (because I won't shut up about it) LOL.  But everything in the stores, my home etc is made somewhere else.  In addition I wouldn't be surprised if many of the items in the manufactured index are inflated.  For instance a hammer in America is more than a hammer somewhere else because you can get more for it here.  I also believe that one of the big reasons Americans don't work is because our culture and society don't require it.  If could not bring in all the cheap crap that would change in a hurry.  

That's why Eric, people in the rest of the world are "upset/confused" with the US why the country that has a large deficit like this :
https://www.macrotrends.net/co... 

But the currency is running like this :
https://www.cnbc.com/quotes/.D... 

You don't need to be PhD or something to understand something is really unfair in the world.
The balance of trade has to be positive for the currency to appreciate.  

[Nate R.]

There will be forced sales, as people need to sell for a variety of reasons that have nothing to do with the housing market: divorce, job change, death, etc. Couple that with demand falling off a cliff, and we will see price declines. It's already started.

As OP notes, there are prognosticators and cheerleaders who insist that a "crash" cannot happen. Maybe so. But a significant decline back to pre-pandemic levels seems possible. The Fed has made it clear that one of the reasons for their hawkish posture is to get a "housing reset".

[John Carbone]

Quote from @James Hamling:

Quote from @John Carbone:

Quote from @James Hamling:

Quote from @John Carbone:

Quote from @Nick H.:

This is a chaotic argument, idk why I'm getting involved. Few points:

1) Easier to look at broad averages here, i.e. all of the US, rather than 1 location. All of the US according to zillow is plateauing but has not dropped. Of course some markets have dropped, and some are continuing to rise. 

2) Definitely need to be looking at change from the peak like @Bruce Woodruff correctly indicated. i.e. (this is purely hypothetical) if 12 months ago avg price of homes was $1,000,000, and they rose to $1,500,000 6 months ago, and then back to $1,000,000 today - it's relevant to what we're talking about that prices went down 33% from the peak - and the buyers who bought at $1.5M are in rough shape. We don't simply say "prices are flat" and move on. 

I do not think it is very likely that prices are going to go down by 20%+. Maybe a short term pullback of 5 - 10% on average, sure, that's very possible. Let's think about how supply and demand are each affected by interest rates going up. Simple econ 101. 

Demand is obvious - demand decreases as rates rise because each dollar of home that you buy becomes less affordable w/ a higher interest mortgage. i.e the subset of people who can afford a given home goes down

Supply - supply decreases as rates rise because fewer owners want to sell their homes, i.e. the subset of people who choose to put homes on the market goes down

So as rates rise, demand decreases, but so does supply. These are the two ingredients to home prices (to prices of anything....). No one knows the magnitude of the demand shift and the supply shift, so we cannot "mathematically" say we know what is going to happen. But, as @James Hamling (and maybe others?) has pointed out - we do have a roadmap of real world data in the 1970's when there was high inflation and quickly increasing interest rates. Real estate did not go down - it went up. 

It went up because inflation was high (that increases the prices of all stuff... i.e. wages roughly doubled in the 1970's) and because while the increasing interest rates lowered demand for housing, it also lowered the supply of it (less ppl wanting to sell because they were locked into much lower rates). So you had lower demand / lower supply that may roughly cancel out, and you have a lot of inflation, which puts upward pressure on home prices. So homes went up >2X in the 1970's. 

Certainly, as others have mentioned, if unemployment goes way up, to say, 10% like it did in 2009 (I don't think anyone credible thinks that is a likely outcome), then that would be a big risk to home prices because defaults go up, rent ppl are able to pay goes down, etc. Outside of that, there aren't many big risk factors here of a large decline in residential RE. Anything is possible (as it has been in 2011, 2012, 2013, 2014, 2015, etc), but I don't see any data/economic based reasoning that would lead to me betting on a 20% decline. The main argument I've heard in this thread from the "crash" side (outside of anecdotal evidence) is that since rates have gone up so much, it only makes sense for prices to come down - but I (very respectfully - we're all on the same team here) disagree as that ignores the supply side dynamics of rate increases. 

Note: for full transparency, imo commercial/apartments probably higher risk of decline (compared to SFH's), given they're tied to shorter term debt

I don’t think it ignores the supply side. The demand shift from buyers is projected (by me) to be significantly more than the supply side. So there  will be excess inventory of homes and apartments. Americans find ways and adapt. Apart from places in California in this country, we don’t have people living on the streets in droves everywhere. People are living somewhere right now. If someone doesn’t own a home now, there’s nothing they can do to afford it other than make more money. The problem is, wages are not growing with inflation to have this be a similar situation in the 70s. Wages are growing for the very bottom rung of workers in society, but these people are also experiencing the brunt of inflation with higher food and energy prices along with rents doubling…plus they likely will now owe federal taxes due to bracket creeping. Buyers will find alternatives for living arrangements when they are pushed into a corner…it’s already happening. When demand craters, there will be supply and at the right price a transaction will occur. 

 This is based on emotion Joe, not facts or data, just your emotion and feelings of things, that's what makes it so wildly inaccurate and incorrect. 

We site a more then 6million unit net shortage right now today. That's an unprecedented number, it took an entire decade of the most epic slowdown, and total stop, in home building to create such an epic unit shortage. That is a massive absorption factor your not taking into any account. 

As for rentals, i have no idea how you can think there will be any excess of rental units, that's completely opposite of your own argument. people loosing homes RENT. Your own argument is one that makes MORE renters, yet you say there will be empty units all over, and empty homes. Where are all these people going? Your talking more then 18 million people. 

What will buyers do, they will adjust there purchasing. It's not to buy or not to buy, it's not an on or off switch. The adjust pricing level, that's it. This is Market Compression; buyers who were 400-500 move too 350-450, those who were at 300-350 move to 250-300, etc.. And as the bottom pricing rungs get stacked with buyers it RAISES competition, which raises pricing, for the lower strata of homes. 

And the whole time, rental rates run up, as more and more move into rental vs purchasing. 

AT END OF THE DAY, the risk vs reward is HEAVILY risk weighted for sellers in this environment where more then 75% have current rates of sub 4/5%. AND buyers are highly REWARD weighted, despite the higher rates, as it's the same cycle it has always been; a renter is paying matching or more for rents vs ownership, and getting nowhere with the payments, 0 equity, moving nowhere forward just burning $. The #1 reason people buy a home, SECURITY, via accruing equity. This will not change at 8% nor 14%. 

SO your premise is dead flat wrong, it's disconnected from the reality of social dynamics. Sellers have greatest risk, lowest reward, and hence they will wait it out, making much MUCH less sellers. Buyers will have exact same motives as ever, just adjusted budgets. 

Impacts will be seem in relation to areas household median incomes, far as which pricing levels have compression in what direction. An area with median incomes of $700k will have downward pressure on homes upward of $1m mark where areas of household median income of say $65k will see compression on pricing at entirely different levels, including much more upward pressure on the lowest pricing strata. 

It will NOT, I say again NOT be a universal downward pressure on home prices. There will NOT be mass vacant units. 

Print this out, save it, my e-mail and # is here. I have a greater then 90% certainty score on this forecast. That, in forecasting, is absolute certainty, as close to 100% as anything gets. I am trying to help people by sharing this, I get paid considerably for this advisory. I don't need to post such here, I am trying to help the "average Joe" from making a horrible mistake via following the loudest arm-chair quarterbacks and not knowing the difference from solid analysis and guesstimates. 

You are entitled to your opinion, but even you said a 10 percent drop is definitely in the cards coming up. So under your assumption, how does it make sense for someone to purchase a home right now, staring a 10 percent haircut in the mirror, 3 percent closing plus, add in liquidation costs of 7 percent if they need to sell, looking at 20 percent negative equity in 6 months according to your projected “market adjustments” 

let’s look at a median home buyer. $425k purchase price and putting 20 percent down. A true qualified buyer. So that’s 85k (plus 12k closing) let’s call it 100k out of pocket. They have a mortgage of $340,000 30 year fixed 7 percent rate. 

here is how it breaks down.

$2,262 payment (23k interest and 3k principle first year)

so after 2 years, they only get 6-7k in principle reduction (doesn’t even cover half of closing costs), the rest is “rent” payments. 

this doesn’t include property taxes or homeowners either which can vary significantly by location. 

I just don’t see the bull case to buy a home right now for personal use. 

That prospective homebuyer can take that 100k down payment and buy 20k of ibonds (if married) earning 2k a year and the other 80k at 4 percent in 1 year treasuries for $3200

that's $5,200 in risk free gains on the 100k down payment. Whereas their principle payment first few years is around $3500 a year buying into a market that is unstable and momentum shifting downwards. Telling people to buy right now is a disservice. 
 

 Your argument makes no sense in reality, it only applies if someone has 0 equity today, sells a home to buy another. Rates could be 1%, I'd tell that person there dumb. 

Here is reality. 

Take Jon and Jane Renter, they now have 2.5 kids a dog and a cat. They have outgrown apartments, there squashed like sardines in there rental townhouse, and rents keep rocketing up, and there now burning through something like $2,300mnth in rent to some Jag-Off landlord called "James", lol. 

For Jon and Jane Renter, does it make sense to buy a place, at a monthly cost of $2,500, which sits at less then 45% net monthly household income? ABSOLUTLY!     That price Jon and Jane Renter will pay on OWNING, is locked. They have now fixed there household expense. As rents average a 5% annual increase it is not long until market rents exceed there locked in household cost basis. Not to mention where 100% of there payment previously were just gone "poof" into the ether, now every time they pay a portion of that $ goes into a nice little retirement account we call "equity". 

Could they have waited another year or 2 to try and "time the bottom" sure, at what cost? It would cost $28k-$56k to wait things out to time the bottom, IF they got lucky enough to thread that needle with a Camel. 

Ok let's flip gears to Investors. 

Dave and Phil are middle class couple who had to move for a job relocation in 2014 and as things sucked to sell, they rented out there place instead. It all worked out so well that in 2017 they bought another home just for purpose of investment real estate and since have added 2 more, sitting on what is a heck of a portfolio, in there eyes, and by all rights Kudos for them, right. 

Dave and Phil are focused in GROWING there portfolio. They want to retire younger, achieve freedom, quit there day jobs and travel the world as food and travel bloggers. How to do such? It takes a whole year to save enough $ to buy a property, and at that they have to sacrifice some things they want to do int hat year. How to hit that goal before 60? 

Turns out that 2017 home, well they got one hell of a buy on it and even though the market has cooled down, they got in at $165k in 2017 but now, today, market price by comps has been around $345k. 

So, even as things have dipped in activity, and comps are coming in at nearly 4% off market highs, they know math and WISELY follow there REI Realtor and get set to sell. The sale goes through and "disaster" hit's, they sell it for a whole 5% off market highs, $327,750. What they owed on the property, a whopping whole $118,800. Dave and Phil just pocketed after selling expenses etc. $176,175.00. Rents keep pacing up and up, not at crazy 20% leaps but solid 5-10%. They wisely do a 1031 exchange and utilize that $176,175 to buy 3 properties, townhomes, in great performing areas, with 20-25% down. One is a nice 2br with a loft so down the road it has that value-add of turning loft into 3rd bedroom. The other 2 are 3br's in nice trendy areas that are really popular with a higher price point to buy a single family home making for a really strong tenant market.

Dave and Phil just turned there 1 performing property at $2,300mnth gross rents, into more then $6k in gross rents, without a penny out of pocket. And, as rents keep stepping up over time as rents do, the returns keep getting better. Tenants are now paying down 3 mortgages for Dave and Phil where months ago, just 1. There equitable returns are a multiplier. Not to mention the depreciation cycle they are back to enjoying which interestingly enough, there CPA says there set to save nearly $10k on there overall tax's end of the year from that little movement. 

This is the difference between novice investing, and professional, informed, strategic Real Estate Investing. Compounding returns beat interest rate hikes every day. Not to mention CONTEXT, taking the whole picture, all the details, the complete picture into account. 

Dave and Phil are at the x-mas retreat in Sachells, and have a cheers along the beach with a giggle "to not timing the bottom".

Your assumption is that rents will always go up. Rent went up so fast the last 2 years well above what it should have. your clients who are selling and buying 3 more at today prices are being bought with the assumption todays rental rates are legitimate and they will never drop. I know that sounds impossible to you, but it’s very likely going to happen. What happens when rents drop 30 percent and home values drop 20 percent. How good will those people feel about buying 3 homes for the “price of one” in that scenario?

Leverage isn’t a genius strategy, it’s just leverage. It works great in booms, but In busts….it bankrupts people. 

[Michael Wooldridge]

Quote from @John Carbone:

Quote from @James Hamling:

Quote from @John Carbone:

Quote from @James Hamling:

Quote from @John Carbone:

Quote from @Nick H.:

This is a chaotic argument, idk why I'm getting involved. Few points:

1) Easier to look at broad averages here, i.e. all of the US, rather than 1 location. All of the US according to zillow is plateauing but has not dropped. Of course some markets have dropped, and some are continuing to rise. 

2) Definitely need to be looking at change from the peak like @Bruce Woodruff correctly indicated. i.e. (this is purely hypothetical) if 12 months ago avg price of homes was $1,000,000, and they rose to $1,500,000 6 months ago, and then back to $1,000,000 today - it's relevant to what we're talking about that prices went down 33% from the peak - and the buyers who bought at $1.5M are in rough shape. We don't simply say "prices are flat" and move on. 

I do not think it is very likely that prices are going to go down by 20%+. Maybe a short term pullback of 5 - 10% on average, sure, that's very possible. Let's think about how supply and demand are each affected by interest rates going up. Simple econ 101. 

Demand is obvious - demand decreases as rates rise because each dollar of home that you buy becomes less affordable w/ a higher interest mortgage. i.e the subset of people who can afford a given home goes down

Supply - supply decreases as rates rise because fewer owners want to sell their homes, i.e. the subset of people who choose to put homes on the market goes down

So as rates rise, demand decreases, but so does supply. These are the two ingredients to home prices (to prices of anything....). No one knows the magnitude of the demand shift and the supply shift, so we cannot "mathematically" say we know what is going to happen. But, as @James Hamling (and maybe others?) has pointed out - we do have a roadmap of real world data in the 1970's when there was high inflation and quickly increasing interest rates. Real estate did not go down - it went up. 

It went up because inflation was high (that increases the prices of all stuff... i.e. wages roughly doubled in the 1970's) and because while the increasing interest rates lowered demand for housing, it also lowered the supply of it (less ppl wanting to sell because they were locked into much lower rates). So you had lower demand / lower supply that may roughly cancel out, and you have a lot of inflation, which puts upward pressure on home prices. So homes went up >2X in the 1970's. 

Certainly, as others have mentioned, if unemployment goes way up, to say, 10% like it did in 2009 (I don't think anyone credible thinks that is a likely outcome), then that would be a big risk to home prices because defaults go up, rent ppl are able to pay goes down, etc. Outside of that, there aren't many big risk factors here of a large decline in residential RE. Anything is possible (as it has been in 2011, 2012, 2013, 2014, 2015, etc), but I don't see any data/economic based reasoning that would lead to me betting on a 20% decline. The main argument I've heard in this thread from the "crash" side (outside of anecdotal evidence) is that since rates have gone up so much, it only makes sense for prices to come down - but I (very respectfully - we're all on the same team here) disagree as that ignores the supply side dynamics of rate increases. 

Note: for full transparency, imo commercial/apartments probably higher risk of decline (compared to SFH's), given they're tied to shorter term debt

I don’t think it ignores the supply side. The demand shift from buyers is projected (by me) to be significantly more than the supply side. So there  will be excess inventory of homes and apartments. Americans find ways and adapt. Apart from places in California in this country, we don’t have people living on the streets in droves everywhere. People are living somewhere right now. If someone doesn’t own a home now, there’s nothing they can do to afford it other than make more money. The problem is, wages are not growing with inflation to have this be a similar situation in the 70s. Wages are growing for the very bottom rung of workers in society, but these people are also experiencing the brunt of inflation with higher food and energy prices along with rents doubling…plus they likely will now owe federal taxes due to bracket creeping. Buyers will find alternatives for living arrangements when they are pushed into a corner…it’s already happening. When demand craters, there will be supply and at the right price a transaction will occur. 

 This is based on emotion Joe, not facts or data, just your emotion and feelings of things, that's what makes it so wildly inaccurate and incorrect. 

We site a more then 6million unit net shortage right now today. That's an unprecedented number, it took an entire decade of the most epic slowdown, and total stop, in home building to create such an epic unit shortage. That is a massive absorption factor your not taking into any account. 

As for rentals, i have no idea how you can think there will be any excess of rental units, that's completely opposite of your own argument. people loosing homes RENT. Your own argument is one that makes MORE renters, yet you say there will be empty units all over, and empty homes. Where are all these people going? Your talking more then 18 million people. 

What will buyers do, they will adjust there purchasing. It's not to buy or not to buy, it's not an on or off switch. The adjust pricing level, that's it. This is Market Compression; buyers who were 400-500 move too 350-450, those who were at 300-350 move to 250-300, etc.. And as the bottom pricing rungs get stacked with buyers it RAISES competition, which raises pricing, for the lower strata of homes. 

And the whole time, rental rates run up, as more and more move into rental vs purchasing. 

AT END OF THE DAY, the risk vs reward is HEAVILY risk weighted for sellers in this environment where more then 75% have current rates of sub 4/5%. AND buyers are highly REWARD weighted, despite the higher rates, as it's the same cycle it has always been; a renter is paying matching or more for rents vs ownership, and getting nowhere with the payments, 0 equity, moving nowhere forward just burning $. The #1 reason people buy a home, SECURITY, via accruing equity. This will not change at 8% nor 14%. 

SO your premise is dead flat wrong, it's disconnected from the reality of social dynamics. Sellers have greatest risk, lowest reward, and hence they will wait it out, making much MUCH less sellers. Buyers will have exact same motives as ever, just adjusted budgets. 

Impacts will be seem in relation to areas household median incomes, far as which pricing levels have compression in what direction. An area with median incomes of $700k will have downward pressure on homes upward of $1m mark where areas of household median income of say $65k will see compression on pricing at entirely different levels, including much more upward pressure on the lowest pricing strata. 

It will NOT, I say again NOT be a universal downward pressure on home prices. There will NOT be mass vacant units. 

Print this out, save it, my e-mail and # is here. I have a greater then 90% certainty score on this forecast. That, in forecasting, is absolute certainty, as close to 100% as anything gets. I am trying to help people by sharing this, I get paid considerably for this advisory. I don't need to post such here, I am trying to help the "average Joe" from making a horrible mistake via following the loudest arm-chair quarterbacks and not knowing the difference from solid analysis and guesstimates. 

You are entitled to your opinion, but even you said a 10 percent drop is definitely in the cards coming up. So under your assumption, how does it make sense for someone to purchase a home right now, staring a 10 percent haircut in the mirror, 3 percent closing plus, add in liquidation costs of 7 percent if they need to sell, looking at 20 percent negative equity in 6 months according to your projected “market adjustments” 

let’s look at a median home buyer. $425k purchase price and putting 20 percent down. A true qualified buyer. So that’s 85k (plus 12k closing) let’s call it 100k out of pocket. They have a mortgage of $340,000 30 year fixed 7 percent rate. 

here is how it breaks down.

$2,262 payment (23k interest and 3k principle first year)

so after 2 years, they only get 6-7k in principle reduction (doesn’t even cover half of closing costs), the rest is “rent” payments. 

this doesn’t include property taxes or homeowners either which can vary significantly by location. 

I just don’t see the bull case to buy a home right now for personal use. 

That prospective homebuyer can take that 100k down payment and buy 20k of ibonds (if married) earning 2k a year and the other 80k at 4 percent in 1 year treasuries for $3200

that's $5,200 in risk free gains on the 100k down payment. Whereas their principle payment first few years is around $3500 a year buying into a market that is unstable and momentum shifting downwards. Telling people to buy right now is a disservice. 
 

 Your argument makes no sense in reality, it only applies if someone has 0 equity today, sells a home to buy another. Rates could be 1%, I'd tell that person there dumb. 

Here is reality. 

Take Jon and Jane Renter, they now have 2.5 kids a dog and a cat. They have outgrown apartments, there squashed like sardines in there rental townhouse, and rents keep rocketing up, and there now burning through something like $2,300mnth in rent to some Jag-Off landlord called "James", lol. 

For Jon and Jane Renter, does it make sense to buy a place, at a monthly cost of $2,500, which sits at less then 45% net monthly household income? ABSOLUTLY!     That price Jon and Jane Renter will pay on OWNING, is locked. They have now fixed there household expense. As rents average a 5% annual increase it is not long until market rents exceed there locked in household cost basis. Not to mention where 100% of there payment previously were just gone "poof" into the ether, now every time they pay a portion of that $ goes into a nice little retirement account we call "equity". 

Could they have waited another year or 2 to try and "time the bottom" sure, at what cost? It would cost $28k-$56k to wait things out to time the bottom, IF they got lucky enough to thread that needle with a Camel. 

Ok let's flip gears to Investors. 

Dave and Phil are middle class couple who had to move for a job relocation in 2014 and as things sucked to sell, they rented out there place instead. It all worked out so well that in 2017 they bought another home just for purpose of investment real estate and since have added 2 more, sitting on what is a heck of a portfolio, in there eyes, and by all rights Kudos for them, right. 

Dave and Phil are focused in GROWING there portfolio. They want to retire younger, achieve freedom, quit there day jobs and travel the world as food and travel bloggers. How to do such? It takes a whole year to save enough $ to buy a property, and at that they have to sacrifice some things they want to do int hat year. How to hit that goal before 60? 

Turns out that 2017 home, well they got one hell of a buy on it and even though the market has cooled down, they got in at $165k in 2017 but now, today, market price by comps has been around $345k. 

So, even as things have dipped in activity, and comps are coming in at nearly 4% off market highs, they know math and WISELY follow there REI Realtor and get set to sell. The sale goes through and "disaster" hit's, they sell it for a whole 5% off market highs, $327,750. What they owed on the property, a whopping whole $118,800. Dave and Phil just pocketed after selling expenses etc. $176,175.00. Rents keep pacing up and up, not at crazy 20% leaps but solid 5-10%. They wisely do a 1031 exchange and utilize that $176,175 to buy 3 properties, townhomes, in great performing areas, with 20-25% down. One is a nice 2br with a loft so down the road it has that value-add of turning loft into 3rd bedroom. The other 2 are 3br's in nice trendy areas that are really popular with a higher price point to buy a single family home making for a really strong tenant market.

Dave and Phil just turned there 1 performing property at $2,300mnth gross rents, into more then $6k in gross rents, without a penny out of pocket. And, as rents keep stepping up over time as rents do, the returns keep getting better. Tenants are now paying down 3 mortgages for Dave and Phil where months ago, just 1. There equitable returns are a multiplier. Not to mention the depreciation cycle they are back to enjoying which interestingly enough, there CPA says there set to save nearly $10k on there overall tax's end of the year from that little movement. 

This is the difference between novice investing, and professional, informed, strategic Real Estate Investing. Compounding returns beat interest rate hikes every day. Not to mention CONTEXT, taking the whole picture, all the details, the complete picture into account. 

Dave and Phil are at the x-mas retreat in Sachells, and have a cheers along the beach with a giggle "to not timing the bottom".

Your assumption is that rents will always go up. Rent went up so fast the last 2 years well above what it should have. If your clients who are selling and buying 3 more at today prices and rents are basing everything off of todays rental rates being legitimate and never dropping. I know that sounds impossible to you, but it’s very likely going to happen. What happens when rents drop 30 percent and home values drop 20 percent. How good will those people feel about buying 3 homes for the “price of one” in that scenario? 

Leverage isn’t a genius strategy, it’s just leverage. It works great in booms, but In busts….it bankrupts people. 

somebody you maybe failed to have miss though is wages have increased correspondingly the last 3 few years. Labor markets have been very tight hence why the fed wants to hit jobs. So yes prices will go back down but pre-pandemic with the wag growth just doesn’t match. Nor with inflation on top of it.

https://www.piie.com/blogs/rea...

[Carlos Ptriawan]

Rent growth is already reducing a lot. There're two components in CPI calculation like rent and OER(owning) and both is trending down.
I am actually expecting rent to be lower in 2023 as more houses will be unsold this and next year. 
I am also expecting MF rent in the south region to be lower in 2023/2024 due to more supply than demand.

It's like 2001-2005 era where Bay area rent goes down. But James may say (again) that's only happening in this specific market only :)

[Greg R.]

Quote from @James Hamling:

Quote from @Greg R.:

Quote from @James Hamling:

Quote from @Greg R.:

Quote from @James Hamling:

Quote from @John Carbone:

Quote from @James Hamling:

Quote from @Carlos Ptriawan:

Quote from @John Carbone:

....the stock market is in free fall.... ...the dollar is on the brink of collapse...  ...massive housing bubble, hyper-inflation is raging out of control.... 

              ---------------------------------------------------------------------------------------------------------------

Nothing I said was untrue. .... Which of those facts are untrue?

 LMAO! Your kidding me right Greg, which of those are not true? ALL of those! 

The stock market is NOT, was not, has not been in free fall. MATTER OF FACT we are entering consecutive days of BIG gains. Welcome to how the stock market works. Rates go up with Fed saying they will do it to point of making a recession YES we in the market price it in for a recession, over-selling happens which "Yee-Haw" cause boy-oh-boy did I snag some awesome buys! 

The dollar is NOT on the brink of collapse. Please Greg, give a shred of evidence for this, just 1. And your opinion is NOT evidence, your feeling is NOT evidence. Please, learn the difference between FACTS and feelings. Like any good lie, built on a foundation of truth. The dollar is coming into competition as world reserve currency but far FAR from collapse. 

I am not even going to touch the housing bubble, because you just keep making things up and are going to just keep calling it a bubble. please review the definition of such, it's not when pricing elevates and there is high demand and low supply, that's the very opposite of a bubble.  

HYPER Inflation, in the U.S.A., no kidding huh?! So, when? Where? Do you even know WTF hyper-inflation is because that is the most moronic FALSE statement of all because all of us in the USA know, 1st hand there is NO HYPER-INFLATION! Again, your just making things up, that is a 100% fact here. 

There ya go buddy, your words, factually not true. As I said, as much as 10% of truth, 90%+ manure.

It begs the question if you actually believe such insanity my friend? If you live in some kind of eco-chamber of nuts nonsense from some tinfoil hat club, to the point where one see's bogymen around every corner, thinks ridiculous things like were in hyper-inflation and next week it will take 4 chickens to get a gallon of gas and you'll be surviving of what you can forage and hunt blah blah blah que the assorted prepper sales commercial. 

You do realize Greg, all those gurus of doom you watch, they are using you as an ATM? Your a sheeple to them, a useful idiot. They get you pumped on fear-porn to then drive to buy assorted junk not needed, will not use, but it itches that fear-porn scratch. Don't believe me, as any prepper from 2009 and after! They got F'd and used. Building bunkers, stockpiling all kinds of BS, for nothing. They were certain the end was "just around the corner", turns out they meant end of their life savings. But hey, they got some nice freeze dried meals for the next 20 years. 

Direct quote from @James Hamling " The stock market is NOT, was not, has not been in free fall."

You can try to spin the narrative however you like, but the facts don't care.

I do appreciate your responses though and the depth of the hole you keep digging for yourself. 😂😂

[Greg R.]

Quote from @Nate R.:

There will be forced sales, as people need to sell for a variety of reasons that have nothing to do with the housing market: divorce, job change, death, etc. Couple that with demand falling off a cliff, and we will see price declines. It's already started.

As OP notes, there are prognosticators and cheerleaders who insist that a "crash" cannot happen. Maybe so. But a significant decline back to pre-pandemic levels seems possible. The Fed has made it clear that one of the reasons for their hawkish posture is to get a "housing reset".

Excellent points Nate. Certain folks refuse to accept the reality. Many markets appreciated 20%+ a year over 2021-2022. So going back to pre-pandemic prices would mean upwards of a 40% reduction of prices. I would certainly call that a crash, or a bubble popping, or whatever term you prefer. 

[James Hamling]

Quote from @John Carbone:

Quote from @James Hamling:

Quote from @John Carbone:

Quote from @James Hamling:

Quote from @John Carbone:

Quote from @Nick H.:

This is a chaotic argument, idk why I'm getting involved. Few points:

1) Easier to look at broad averages here, i.e. all of the US, rather than 1 location. All of the US according to zillow is plateauing but has not dropped. Of course some markets have dropped, and some are continuing to rise. 

2) Definitely need to be looking at change from the peak like @Bruce Woodruff correctly indicated. i.e. (this is purely hypothetical) if 12 months ago avg price of homes was $1,000,000, and they rose to $1,500,000 6 months ago, and then back to $1,000,000 today - it's relevant to what we're talking about that prices went down 33% from the peak - and the buyers who bought at $1.5M are in rough shape. We don't simply say "prices are flat" and move on. 

I do not think it is very likely that prices are going to go down by 20%+. Maybe a short term pullback of 5 - 10% on average, sure, that's very possible. Let's think about how supply and demand are each affected by interest rates going up. Simple econ 101. 

Demand is obvious - demand decreases as rates rise because each dollar of home that you buy becomes less affordable w/ a higher interest mortgage. i.e the subset of people who can afford a given home goes down

Supply - supply decreases as rates rise because fewer owners want to sell their homes, i.e. the subset of people who choose to put homes on the market goes down

So as rates rise, demand decreases, but so does supply. These are the two ingredients to home prices (to prices of anything....). No one knows the magnitude of the demand shift and the supply shift, so we cannot "mathematically" say we know what is going to happen. But, as @James Hamling (and maybe others?) has pointed out - we do have a roadmap of real world data in the 1970's when there was high inflation and quickly increasing interest rates. Real estate did not go down - it went up. 

It went up because inflation was high (that increases the prices of all stuff... i.e. wages roughly doubled in the 1970's) and because while the increasing interest rates lowered demand for housing, it also lowered the supply of it (less ppl wanting to sell because they were locked into much lower rates). So you had lower demand / lower supply that may roughly cancel out, and you have a lot of inflation, which puts upward pressure on home prices. So homes went up >2X in the 1970's. 

Certainly, as others have mentioned, if unemployment goes way up, to say, 10% like it did in 2009 (I don't think anyone credible thinks that is a likely outcome), then that would be a big risk to home prices because defaults go up, rent ppl are able to pay goes down, etc. Outside of that, there aren't many big risk factors here of a large decline in residential RE. Anything is possible (as it has been in 2011, 2012, 2013, 2014, 2015, etc), but I don't see any data/economic based reasoning that would lead to me betting on a 20% decline. The main argument I've heard in this thread from the "crash" side (outside of anecdotal evidence) is that since rates have gone up so much, it only makes sense for prices to come down - but I (very respectfully - we're all on the same team here) disagree as that ignores the supply side dynamics of rate increases. 

Note: for full transparency, imo commercial/apartments probably higher risk of decline (compared to SFH's), given they're tied to shorter term debt

I don’t think it ignores the supply side. The demand shift from buyers is projected (by me) to be significantly more than the supply side. So there  will be excess inventory of homes and apartments. Americans find ways and adapt. Apart from places in California in this country, we don’t have people living on the streets in droves everywhere. People are living somewhere right now. If someone doesn’t own a home now, there’s nothing they can do to afford it other than make more money. The problem is, wages are not growing with inflation to have this be a similar situation in the 70s. Wages are growing for the very bottom rung of workers in society, but these people are also experiencing the brunt of inflation with higher food and energy prices along with rents doubling…plus they likely will now owe federal taxes due to bracket creeping. Buyers will find alternatives for living arrangements when they are pushed into a corner…it’s already happening. When demand craters, there will be supply and at the right price a transaction will occur. 

 This is based on emotion Joe, not facts or data, just your emotion and feelings of things, that's what makes it so wildly inaccurate and incorrect. 

We site a more then 6million unit net shortage right now today. That's an unprecedented number, it took an entire decade of the most epic slowdown, and total stop, in home building to create such an epic unit shortage. That is a massive absorption factor your not taking into any account. 

As for rentals, i have no idea how you can think there will be any excess of rental units, that's completely opposite of your own argument. people loosing homes RENT. Your own argument is one that makes MORE renters, yet you say there will be empty units all over, and empty homes. Where are all these people going? Your talking more then 18 million people. 

What will buyers do, they will adjust there purchasing. It's not to buy or not to buy, it's not an on or off switch. The adjust pricing level, that's it. This is Market Compression; buyers who were 400-500 move too 350-450, those who were at 300-350 move to 250-300, etc.. And as the bottom pricing rungs get stacked with buyers it RAISES competition, which raises pricing, for the lower strata of homes. 

And the whole time, rental rates run up, as more and more move into rental vs purchasing. 

AT END OF THE DAY, the risk vs reward is HEAVILY risk weighted for sellers in this environment where more then 75% have current rates of sub 4/5%. AND buyers are highly REWARD weighted, despite the higher rates, as it's the same cycle it has always been; a renter is paying matching or more for rents vs ownership, and getting nowhere with the payments, 0 equity, moving nowhere forward just burning $. The #1 reason people buy a home, SECURITY, via accruing equity. This will not change at 8% nor 14%. 

SO your premise is dead flat wrong, it's disconnected from the reality of social dynamics. Sellers have greatest risk, lowest reward, and hence they will wait it out, making much MUCH less sellers. Buyers will have exact same motives as ever, just adjusted budgets. 

Impacts will be seem in relation to areas household median incomes, far as which pricing levels have compression in what direction. An area with median incomes of $700k will have downward pressure on homes upward of $1m mark where areas of household median income of say $65k will see compression on pricing at entirely different levels, including much more upward pressure on the lowest pricing strata. 

It will NOT, I say again NOT be a universal downward pressure on home prices. There will NOT be mass vacant units. 

Print this out, save it, my e-mail and # is here. I have a greater then 90% certainty score on this forecast. That, in forecasting, is absolute certainty, as close to 100% as anything gets. I am trying to help people by sharing this, I get paid considerably for this advisory. I don't need to post such here, I am trying to help the "average Joe" from making a horrible mistake via following the loudest arm-chair quarterbacks and not knowing the difference from solid analysis and guesstimates. 

You are entitled to your opinion, but even you said a 10 percent drop is definitely in the cards coming up. So under your assumption, how does it make sense for someone to purchase a home right now, staring a 10 percent haircut in the mirror, 3 percent closing plus, add in liquidation costs of 7 percent if they need to sell, looking at 20 percent negative equity in 6 months according to your projected “market adjustments” 

let’s look at a median home buyer. $425k purchase price and putting 20 percent down. A true qualified buyer. So that’s 85k (plus 12k closing) let’s call it 100k out of pocket. They have a mortgage of $340,000 30 year fixed 7 percent rate. 

here is how it breaks down.

$2,262 payment (23k interest and 3k principle first year)

so after 2 years, they only get 6-7k in principle reduction (doesn’t even cover half of closing costs), the rest is “rent” payments. 

this doesn’t include property taxes or homeowners either which can vary significantly by location. 

I just don’t see the bull case to buy a home right now for personal use. 

That prospective homebuyer can take that 100k down payment and buy 20k of ibonds (if married) earning 2k a year and the other 80k at 4 percent in 1 year treasuries for $3200

that's $5,200 in risk free gains on the 100k down payment. Whereas their principle payment first few years is around $3500 a year buying into a market that is unstable and momentum shifting downwards. Telling people to buy right now is a disservice. 
 

 Your argument makes no sense in reality, it only applies if someone has 0 equity today, sells a home to buy another. Rates could be 1%, I'd tell that person there dumb. 

Here is reality. 

Take Jon and Jane Renter, they now have 2.5 kids a dog and a cat. They have outgrown apartments, there squashed like sardines in there rental townhouse, and rents keep rocketing up, and there now burning through something like $2,300mnth in rent to some Jag-Off landlord called "James", lol. 

For Jon and Jane Renter, does it make sense to buy a place, at a monthly cost of $2,500, which sits at less then 45% net monthly household income? ABSOLUTLY!     That price Jon and Jane Renter will pay on OWNING, is locked. They have now fixed there household expense. As rents average a 5% annual increase it is not long until market rents exceed there locked in household cost basis. Not to mention where 100% of there payment previously were just gone "poof" into the ether, now every time they pay a portion of that $ goes into a nice little retirement account we call "equity". 

Could they have waited another year or 2 to try and "time the bottom" sure, at what cost? It would cost $28k-$56k to wait things out to time the bottom, IF they got lucky enough to thread that needle with a Camel. 

Ok let's flip gears to Investors. 

Dave and Phil are middle class couple who had to move for a job relocation in 2014 and as things sucked to sell, they rented out there place instead. It all worked out so well that in 2017 they bought another home just for purpose of investment real estate and since have added 2 more, sitting on what is a heck of a portfolio, in there eyes, and by all rights Kudos for them, right. 

Dave and Phil are focused in GROWING there portfolio. They want to retire younger, achieve freedom, quit there day jobs and travel the world as food and travel bloggers. How to do such? It takes a whole year to save enough $ to buy a property, and at that they have to sacrifice some things they want to do int hat year. How to hit that goal before 60? 

Turns out that 2017 home, well they got one hell of a buy on it and even though the market has cooled down, they got in at $165k in 2017 but now, today, market price by comps has been around $345k. 

So, even as things have dipped in activity, and comps are coming in at nearly 4% off market highs, they know math and WISELY follow there REI Realtor and get set to sell. The sale goes through and "disaster" hit's, they sell it for a whole 5% off market highs, $327,750. What they owed on the property, a whopping whole $118,800. Dave and Phil just pocketed after selling expenses etc. $176,175.00. Rents keep pacing up and up, not at crazy 20% leaps but solid 5-10%. They wisely do a 1031 exchange and utilize that $176,175 to buy 3 properties, townhomes, in great performing areas, with 20-25% down. One is a nice 2br with a loft so down the road it has that value-add of turning loft into 3rd bedroom. The other 2 are 3br's in nice trendy areas that are really popular with a higher price point to buy a single family home making for a really strong tenant market.

Dave and Phil just turned there 1 performing property at $2,300mnth gross rents, into more then $6k in gross rents, without a penny out of pocket. And, as rents keep stepping up over time as rents do, the returns keep getting better. Tenants are now paying down 3 mortgages for Dave and Phil where months ago, just 1. There equitable returns are a multiplier. Not to mention the depreciation cycle they are back to enjoying which interestingly enough, there CPA says there set to save nearly $10k on there overall tax's end of the year from that little movement. 

This is the difference between novice investing, and professional, informed, strategic Real Estate Investing. Compounding returns beat interest rate hikes every day. Not to mention CONTEXT, taking the whole picture, all the details, the complete picture into account. 

Dave and Phil are at the x-mas retreat in Sachells, and have a cheers along the beach with a giggle "to not timing the bottom".

Your assumption is that rents will always go up. Rent went up so fast the last 2 years well above what it should have. your clients who are selling and buying 3 more at today prices are being bought with the assumption todays rental rates are legitimate and they will never drop. I know that sounds impossible to you, but it’s very likely going to happen. What happens when rents drop 30 percent and home values drop 20 percent. How good will those people feel about buying 3 homes for the “price of one” in that scenario?

Leverage isn’t a genius strategy, it’s just leverage. It works great in booms, but In busts….it bankrupts people. 

 Again, your just making things up, just plucking them from thin air with 0 justification, really no basis in reality what so ever. 

If were gonna talk about make believe what-if's let's have some fun with it. What if the Yellowstone caldera explodes? Or what if there really is a secret Reptilian conspiracy to raise global temps and farm humans, humm. 

These have as much basis as your random notion of everything dropping, millions of persons disappearing, just because. You've ignored all facts, so what point is there to follow up with more. 

Tell the tinfoil-hat brigade I said hi. 

[James Hamling]

To what point is this entire posting now????

It's clear that a few in here are just dead set obsessed with the end of everything. No matter what is shown, pointed out, proven, none of it matters the pre-ordained conclusion is THE END IS NEIGH. 

It all just reminds how the math of the game keeps proving itself over and over again. For every 1 of us out on the field actually playing the game, with actual working knowledge, actually "doing", there is 10,000 sitting in the stands screaming how wrong everyone on the field is and how genius they are, from there seats, watching, just watching, professional spectators. 

Tell ya what, maybe I will put it in book form once I get done "doing", call it "How The Sky DIDNT Fall". 

[James Hamling]

Quote from @Todd Dexheimer:

I don't believe we are going to see a crash. The US has only seen 4 down cycles with more than 15% overall price reductions over the past 250 years. The inventory is still near all time lows, there is currently a ton of equity in people homes, with most of the country holding long term debt at low interest rates. 

Will we see a slow down and maybe even a reduction in prices? Quite possibly. Interest rates and the shaky economy definitely will impact home values, but a reduction in prices causing a crash is less likely (not impossible). With that said, markets are local, so some may see a 15%+ correction. 

I've been investing since 2008 and have heard people calling for a crash since 2013. The second the market began to rise there was shadow inventory that was going to crash the market, then a double dip recession, then it was stocks go through a cycle every 6-8 years, so real estate will go down with it, then COVID, now this. Certainly, eventually, we are bound to see a crash, but most of the time it's just a small slow down/dip. 

 We should almost start a thread called "Name The Crashes That Never Happened" because holly-cow, I don't think I can remember them all now. 

[Collin Hays]

Hubris is a dangerous thing.  You started in RE in 2009.  It’s been a straight line up since.  I’m glad you have conviction that it will continue, but mocking those that disagree is out of line.  

Continue as you were.  I hope it keeps working out.

[John Carbone]

Quote from @James Hamling:

To what point is this entire posting now????

It's clear that a few in here are just dead set obsessed with the end of everything. No matter what is shown, pointed out, proven, none of it matters the pre-ordained conclusion is THE END IS NEIGH. 

It all just reminds how the math of the game keeps proving itself over and over again. For every 1 of us out on the field actually playing the game, with actual working knowledge, actually "doing", there is 10,000 sitting in the stands screaming how wrong everyone on the field is and how genius they are, from there seats, watching, just watching, professional spectators. 

Tell ya what, maybe I will put it in book form once I get done "doing", call it "How The Sky DIDNT Fall". 

@James Hamling  what happens to your “3 for 1” client who faces political backlash when this goes into effect across the whole metro area? Do you really think your local government is going to allow rent gauging beyond affordability? Looks like Minnesota is on the brink of being California 2.0 

https://m.startribune.com/st-p... reminds me of a mortgage broker I knew back in 2006, really good guy, but he was in way over his head. He said how great teaser rates were because real estate only went up and that once the reset occurs, the negative amortization can be rolled into a refi into another teaser rate. It was a genius idea right? Paying 1-2 percent interest and since housing always goes up I mean what idiot wouldn’t buy 50 homes and then turn around and rent it to “chumps” all the while pocketing the spread and gaining home equity on top! Well we all know how that played out. But sure James, it’s different this time. What’s comical, is that you think a 20 percent drop in real estate will be the end of the world scenario….wow reversing 18 months of gains! How could that be? Will the world end and will there be aliens all because of this happening?

[Bruce Woodruff]

Can you guys stop clicking 'quote' and reposting the entire thread every time? Maybe take a second and just copy/paste what is relevant.......just a thought...

[Joe Chirdon]

In Central Pennsylvania things have definitely slowed down or at least plateaued. I've noticed that financed buyers are becoming more hesitant with interest rates up. 

[Greg R.]

Quote from @James Hamling:

Quote from @John Carbone:

Quote from @James Hamling:

Quote from @John Carbone:

Quote from @James Hamling:

Quote from @John Carbone:

 Again, your just making things up, just plucking them from thin air with 0 justification, really no basis in reality what so ever. 

If were gonna talk about make believe what-if's let's have some fun with it. What if the Yellowstone caldera explodes? Or what if there really is a secret Reptilian conspiracy to raise global temps and farm humans, humm. 

These have as much basis as your random notion of everything dropping, millions of persons disappearing, just because. You've ignored all facts, so what point is there to follow up with more. 

Tell the tinfoil-hat brigade I said hi. 

Because you think that the market can't crash and believe that RE only goes up in value (much like the folks who lost it all in 08), that makes anyone who puts the pieces together & sees the writing on the wall a conspiracy theorists lol? 

The data is very clear that markets across the US are slowing, many at a significant pace and some not as rapid. There seems to be a notion in your head that a crash happens immediately. But that's not how this is happening. The main driver for what's happening now is rates. Rates have been increasing gradually over the past several months. As the rates have gone up, we've seen a pretty consistent  decline in mortgage apps, sales, and value. It's a very easy correlation to make. 

Year over year we're looking at a 23% decrease in homes sold nationally. It's completely obvious why... last year at this time rates were below 3%. Now we're just under 7%. 

You can try to make this topic convoluted as you've been doing, but it's actually very straight-forward. It's simply not a good time to buy right now if you're financing. Most people with half a brain have figured that out and have pulled out of the market. There is a clear difference between buyers and sellers. When a seller NEEDS to sell, it is what it is. I'm not going to list off all of the life circumstances that force people to sell, but these circumstances do not wait for rates to change or the market to improve. Someone like that is forced to sell. With exception to a few scenarios (1031), a vast majority of buyers can opt not to buy and postpone. Very. very few people are in a situation where they are forced to buy, probably close to zero.  

At this point the sellers who are forced to sell cannot dig their heels in and demand top of the bubble prices, because many buyers are priced out of the market, and many others have decided that they're out. The sellers are forced to lower the price to where the buyers are at if they want to sell. There's no other scenario in which they'll sell the property.  A cash buying investor isn't going to sprout out of the ground and bail out a delusional seller. 

So far the price drops have been moderate but we're already seeing them very clearly. Rates were 5% at zero points 1-2 months ago. Let the 6s-7s sink in and we'll see the impacts in December/ January. 

Again, simple economics. Any attempt do distort this truth is just a way to avoid the facts. 

[Chris John]

Wow.  Lot of interesting points and passion on both sides.  Very good stuff.

For me, it could go either way.  On one hand, all that really matters is payments.  I'll pay you $100,000,000 for a house if you let me pay $100/mo for a million months.  Shoot, I'll pay you $100/mo for eternity - I'm just that kind of guy.  The incentive to walk away from an upside down house in 2009 was great.  "I can get the same house for $1,000 cheaper and I won't owe an extra half million dollars?  See ya!"  The incentive to walk away from an upside down house in 2022 probably won't be as great if you're locked in at 2.25% on a 30 year fixed. Who cares if they're upside down? They're not going to eat $1,000 a month to make their balance sheet look better.  For that reason, no inventory and prices don't drop.

On the other hand, what happens when BlackRock type institutional investors decide their returns are too low and want to liquidate their accounts and move into equities?  Will they be the ones forcing sales and flooding the market with properties?  A few months ago, everyone was complaining about institutional investors buying everything up.  Well, those evil institutional investors are just "Joe the plumber" making retirement investments.  If his money isn't making money, he may up and move it.  For that reason, tons of inventory and prices drop.  Honestly, I'm not sure how much inventory institutional investors are holding right now...

[Carlos Ptriawan]

Quote from @Chris John:

 retirement investments.  If his money isn't making money, he may up and move it.  For that reason, tons of inventory and prices drop.  Honestly, I'm not sure how much inventory institutional investors are holding right now...

I can help you with this. From what I read, 1:5 houses are belong to 'institution' ; it used to be 1:10 five years ago.

So yes they have bigger effect during this market.

Btw they will not sell their holding, they may only increase :) lol

[Chris John]

@Carlos Ptriawan

That ratio is crazy!  Wouldn't they have to sell though?  I mean if everyone pulled their money and walked?  They'd have to get cash to liquidate the selling positions somehow, no?

[Stephen K.]

Quote from @Account Closed:

Quote from @Greg R.:

Quote from @David Song:

@Greg R.

Housing prices will always go up. Buy anytime. - bigger pockets.com

Reality: numerous REI lost their life savings in 2009 and maybe 2022. Over leveraging, insufficient reserve, short term loan with balloon payment, etc.

Flippers bought in Q1 2022 will learn the lesson now. Many of them are losing their shirt. None will tell you publicly.

The price decline started in April 2022, and has been declining for the last 4 months. The bottom has not been reached yet. This is nationwide, from CA to Texas, everywhere. 

Couldn't agree more. There seems to be a fantasy land that some folks are living in where prices never go down, and no matter the conditions - it's always the right time to buy. And you're right, the people who've lost everything from the flips they bought in Q1 are awfully quiet right now. Too much ego/ pride to come on BP forms and expose their foolishness. 

Fun topic @Greg R.: 
The real concern is layoffs, evictions and inflation. Will that affect housing prices? Sure, but it's sneaky. It walks up behind you and bites you in the butt. 
And . . . it doesn't happen all at once. It wil take a year to clear out the existing "hidden inventory" of foreclosures now that foreclosures are starting up again. But with rents going so high, so fast, expect a lot of evictions coming in a tidal wave over the next 6 months. 
Then what? With all of these people having a recent eviction on their record, who is going to rent to them?
That problem hasn't been solved, because it hasn't presented itself yet, but like the sun rising tomorrow, it's on it's way.

 I agree, evictions will definitely be a problem. Depending on which state you're looking at and what the political landscape looks like in the next couple years we may see another massive bailout for renters and little to no help for landlords. As companies continue to hammered in the private & public sectors, mass layoffs and bankruptcies will continue to accelerate. Unemployment rates (the bogus calcs are for another time) are a lagging indicator so we will see this pick up soon enough. Fed policy has fueled a lot of malinvestment and much of the debt is adjustable. Further, valuations will get crushed with rates going up and earnings going down and I don't think folks understand the magnitude of the corporate debt problem and how it will impact jobs and wages.  

[Jay Hinrichs]

Quote from @Carlos Ptriawan:

Quote from @Chris John:

 retirement investments.  If his money isn't making money, he may up and move it.  For that reason, tons of inventory and prices drop.  Honestly, I'm not sure how much inventory institutional investors are holding right now...

I can help you with this. From what I read, 1:5 houses are belong to 'institution' ; it used to be 1:10 five years ago.

So yes they have bigger effect during this market.

Btw they will not sell their holding, they may only increase :) lol

I have to say serously doubt institutional investors own 1 in 5 SFR's nationwide I could see 5 out of a 100 something like that but 1 in 5 no way is my thought.

[Stephen K.]

Quote from @Chris John:

Wow.  Lot of interesting points and passion on both sides.  Very good stuff.

For me, it could go either way.  On one hand, all that really matters is payments.  I'll pay you $100,000,000 for a house if you let me pay $100/mo for a million months.  Shoot, I'll pay you $100/mo for eternity - I'm just that kind of guy.  The incentive to walk away from an upside down house in 2009 was great.  "I can get the same house for $1,000 cheaper and I won't owe an extra half million dollars?  See ya!"  The incentive to walk away from an upside down house in 2022 probably won't be as great if you're locked in at 2.25% on a 30 year fixed. Who cares if they're upside down? They're not going to eat $1,000 a month to make their balance sheet look better.  For that reason, no inventory and prices don't drop.

On the other hand, what happens when BlackRock type institutional investors decide their returns are too low and want to liquidate their accounts and move into equities?  Will they be the ones forcing sales and flooding the market with properties?  A few months ago, everyone was complaining about institutional investors buying everything up.  Well, those evil institutional investors are just "Joe the plumber" making retirement investments.  If his money isn't making money, he may up and move it.  For that reason, tons of inventory and prices drop.  Honestly, I'm not sure how much inventory institutional investors are holding right now...

It would be interesting to see how institutional investors like BlackRock are financing these deals. They are paying cash for the properties but when real rates have been zero/negative for a decade, you know they have a ton of leverage in these funds...I'm sure they're hedged but it would be interesting to know what their exposure is if anyone has those details...

[Eric Bilderback]

Quote from @Carlos Ptriawan:

Quote from @Eric Bilderback:

@JD Martin

Thats some solid push back.  I have no metrics.  But our trade deficit is very high, and I think there are some funny numbers going on (but if you pushed me I can't prove that).  I could be wrong here and I will look into this (because I won't shut up about it) LOL.  But everything in the stores, my home etc is made somewhere else.  In addition I wouldn't be surprised if many of the items in the manufactured index are inflated.  For instance a hammer in America is more than a hammer somewhere else because you can get more for it here.  I also believe that one of the big reasons Americans don't work is because our culture and society don't require it.  If could not bring in all the cheap crap that would change in a hurry.  

That's why Eric, people in the rest of the world are "upset/confused" with the US why the country that has a large deficit like this :
https://www.macrotrends.net/co... 

But the currency is running like this :
https://www.cnbc.com/quotes/.D... 

You don't need to be PhD or something to understand something is really unfair in the world.
The balance of trade has to be positive for the currency to appreciate.  

 Because America has the worlds reserve currency we get away with more then anyone else in the world could dream of.  However it is also why we have to fight all the damn wars in the Middle East etc.  if Saudi Arabia decided to sell their oil in another currency our goose would be cooked as my grandmas used to say.   
I thought we were being a little provocative towards Russia financing Ukraine more then Europe, why does it have to be are fight yet again?  Let’s just help negotiate a piece and be done, go help the people being killed in Ethiopia or give those billions of dollars to Baltimore or South Chicago.  But then when that pipeline blew up the other day I can see an explanation I find very plausible as to why we have Russia in our crosshairs..   

[Michael Wooldridge]

Quote from @Carlos Ptriawan:

Quote from @Chris John:

 retirement investments.  If his money isn't making money, he may up and move it.  For that reason, tons of inventory and prices drop.  Honestly, I'm not sure how much inventory institutional investors are holding right now...

I can help you with this. From what I read, 1:5 houses are belong to 'institution' ; it used to be 1:10 five years ago.

So yes they have bigger effect during this market.

Btw they will not sell their holding, they may only increase :) lol

Where are you getting institutional number? I’ve seen investor numbers at 1:10 but private investors are still a good portion of market. Would be interested in the data.