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. 

[Carlos Ptriawan]

Quote from @Michael Wooldridge:

You are missing the point. For blackrock to fail it means the US has failed. It means it's been a complete world collapse. I'm saying worrying about them failing is a pointless activity. You need to look at what's invested in them, how much and how much they dwarf everybody. 

IF they fail it means everything has collapsed. So it's not worth worrying about. 

100%.

They're slowing down withdrawal is a good thing because many crashes are created due to investor panic **unnecessarily* .

And still, to these days, real estate in the US (that's purchased in US Dollars) is still the best hedge against any inflation/crashes. 

Almost every rich folks outside the US want a little bit of' equity' from US Real Estate, so they buy thru companies like Blackrock and Blackstone.

[John Carbone]

Quote from @Michael Wooldridge:

Quote from @John Carbone:

Quote from @Michael Wooldridge:

Quote from @John Carbone:

Quote from @Nick H.:

@John Carbone BTW one clarification - there's no concept of a "margin call" really. The equivalent here is really if they mess up on a loan covenant (or again, whatever the specific provisions of their agreement is w/ the bank on the loan) - then it could be called. The most common would be a DSCR covenant. The value of the home itself isn't directly relevant to that - it's just their ability to service the debt with the cashflow from the property.

In practice, given how much rents have gone up, they would likely need rents to drop, a lot, to have any DSCR issues.

 https://moneymarketadvisor.com...

Private equity is very sensitive to short term rates. They are not getting long fixed term duration funding. 

It’s getting mainstream now, here’s an article today from realtor.com, wait until John Doe sees this. This pretty much sums up what we have all been saying in here except the “never crashers” led by super realtor James . 

https://www.realtor.com/news/t...

james should report this writer for spreading falsehoods. Everything discussed in the article has been discussed in this thread and “proven” by James to be false made up information. How does realtor.com allow such made up conspiracies on their website?

 Did you read the article? 

“Zandi believes home prices will fall about 10% nationally over the next 12 to 18 months if the country avoids a recession. If one happens, he anticipates price declines could approach 20% from peak to trough in 2024.”

IT also said don’t expect foreclosures. Don’t expect more homes to go up for sale - essentially reduced prices which is what a lot of us have been saying.

But hey I’ve been saying 10-20% depending on a few factors :). So I’m not opposed to your article. @Carlos Ptriawan 

https://amp.cnn.com/cnn/2022/1...

How will we even know when it’s a recession? We no longer use the definition that we always used in the past. is there a new official definition? I know it’s related to unemployment, but what’s the official metric? 
 

@John Carbone Wow you fix the article link but not on the post where I called out that it’s probably the KPMG CEO Survey? You gave no indication in your original post except that it was hot off the presses (it wasn’t). I also made several comments this week that the Fortune 500 were planning lay offs. That you’d see many announced in q4 (some already have since those comments) more will. 

It’s not news or surprising. It’s something factor into my numbers. Numbers you seeem to skip over by not commenting also on other 08 factors like unemployment, labor rate participation and subprime crisis that led us to a 28% market shift. Mean while unemployment that is the lowest it’s been in history, high wages, and no subprime crisis but somehow we will end up at 25%+ price changes.

I’ve been saying 10-20% shift since day 1. You post an article as a resource to pricing changes from realtor.com - that literally says the same thing. 

BTW Blackrock isn’t ever going to fail. If blackrock fails it means the entire world collapsed. IF you are predicting that please let us know. You need to go revisit where I explain how many assets there are or to @Carlos Ptriawan point whose assets those involve.

I’m not going to argue with someone who is calling for a 10-20 percent drop. I’m not saying black rock will go under. I said if their stock was ever 60-70 percent down, they could be In trouble. Never say never. People said same thing about Lehman and wamu in 2008. Again I’m not predicting this, but risk factor is >0 . if my article didn’t work I’m sorry, it was hot off the press, the JOLTS report showing 1.1m drop unexpected. I’m not comparing this to 2008 with job loses, lower home prices on lower transactions, nothing like 2008, stop trying to say I’m comparing it directly to 2008, way different environment now. 

[Michael Wooldridge]

Quote from @Carlos Ptriawan:

Quote from @Michael Wooldridge:

Quote from @Ben Einspahr:

@Greg R.

My simple answer is economics 101. Supply vs demand. Recession, very possible. Crash, not likely.

Spot on. Not ot mention if we looked at that for what they build for 2022 or 20223. That gap is going to widen.  

 Do you know that demand has its elasticity factor? Demand is not constant.

Elastic demand is one in which the change in quantity demanded due to a change in price is large.

That happened during the recession, as the price is too expensive, people prefer to save money and not buy mortgage because the mortgage is more than rent right now, so the demand could pretty much collapse during mortgage hikes. This is especially true in low cap rate market like CA/WA (James will say that's your specific market issue LOL)

The simple economic 101 only works in normal environment. We are entering an abnormal phase of economic activity. We don't need those supply of houses and as a result, rent growth is already reducing.

 I'm well aware of buyers will be sitting on the side for the next year. Overall home gap will still grow with the extreme stop builders are doing. Which is also going to keep rents up to your point.

So will less buyers be out there? Absolutely but at the same time there will be less homes for sale as buyers delay selling. Both are true. And to the point I've made all along and your own data shows - the west vs east coast regions are experiencing very different dynamics. Some of that is the is the low cap - some of that is tech adjustments (I work in tech tied to talent and fortune c-suite so it's something I'm intimately familiar). you won't get nay argument from me whats happening out west and it will be worse. But there are many more markets in a very different scenario. So you end up with a balance. Cali would have to drop 40% to start to push up the median valuation depreciation to the numbers being talked about. OR Florida market needs to fall out. The population numbers 

it doesn't change the fact that there is a massive supply gap period. This is especially true if the Fed takes a middle ground path on rates and slows down increases. Which seems possible now. 

Anyway almost every comment I've pointed to has acknowledged elasticity. Including the fact that sellers especially will start sitting on the sidelines, so will some buyers. So less people, less inventory. The real question is does one side outweigh the other in the change? 

[Carlos Ptriawan]

[btw that thing about elasticility is not a reply to you ]

Good point. Yes if we see data we already see nationwide reduced rent growth and the demand for houses in low cap-rate/west coast/tech economy is also reduced hence inventory increasing. 

You always bring up a good point, I think from now on we should just say in the US we have two markets that are behaving in the true opposite 

(low cap rate/west coast vs east coast/high cap rate).

[Michael Wooldridge]

Quote from @Carlos Ptriawan:

[btw that thing about elasticility is not a reply to you ]

Good point. Yes if we see data we already see nationwide reduced rent growth and the demand for houses in low cap-rate/west coast/tech economy is also reduced hence inventory increasing. 

You always bring up a good point, I think from now on we should just say in the US we have two markets that are behaving in the true opposite 

(low cap rate/west coast vs east coast/high cap rate).

 Got you. And I agree. To me there are 3 final big elements to the US market:

1) Florida. IT's had west coast style growth but isn't slowing down. Now transplants to FL are primarily east coast (not all but a lot). So maybe thats why. but I'm very curious how that market reacts. It's also a very large market. On the other hand hurricane just destroyed homes so does that artificially keep prices high? But the big thing FLorida market is large enough to swing things in terms of median (sort of like Cali)

2) Global piece. IF the Fed breaks the economy al bets are off. I don't see that happening. but slightly worried about Credit Suisse. 

3) Ukraine - If that goes to the next level. All bets are off for everything.

Frankly the rest of the stuff as you said, you can see in the data it's been pretty consistent. There isn't a lot of other unknowns it's more about degree of how bad it gets which have standard deviations. 

Anyway we should know a lot more in next 75 days to be honest. I can promise lay offs are coming from f500 but they aren't these massive 15-20% lay offs that you typically see. They just don't have the elasticity in their workforce anymore. It's also much more likely to be industry specific. I.e. mortgages, tech to an extent (but less than people thing due to the skills shortage) etc.. 

[Michael Wooldridge]

Quote from @John Carbone:

Quote from @Michael Wooldridge:

Quote from @John Carbone:

Quote from @Michael Wooldridge:

Quote from @John Carbone:

Quote from @Nick H.:

@John Carbone BTW one clarification - there's no concept of a "margin call" really. The equivalent here is really if they mess up on a loan covenant (or again, whatever the specific provisions of their agreement is w/ the bank on the loan) - then it could be called. The most common would be a DSCR covenant. The value of the home itself isn't directly relevant to that - it's just their ability to service the debt with the cashflow from the property.

In practice, given how much rents have gone up, they would likely need rents to drop, a lot, to have any DSCR issues.

 https://moneymarketadvisor.com...

It’s getting mainstream now, here’s an article today from realtor.com, wait until John Doe sees this. This pretty much sums up what we have all been saying in here except the “never crashers” led by super realtor James . 

https://www.realtor.com/news/t...

james should report this writer for spreading falsehoods. Everything discussed in the article has been discussed in this thread and “proven” by James to be false made up information. How does realtor.com allow such made up conspiracies on their website?

 Did you read the article? 

“Zandi believes home prices will fall about 10% nationally over the next 12 to 18 months if the country avoids a recession. If one happens, he anticipates price declines could approach 20% from peak to trough in 2024.”

IT also said don’t expect foreclosures. Don’t expect more homes to go up for sale - essentially reduced prices which is what a lot of us have been saying.

But hey I’ve been saying 10-20% depending on a few factors :). So I’m not opposed to your article. @Carlos Ptriawan 

https://amp.cnn.com/cnn/2022/1...

How will we even know when it’s a recession? We no longer use the definition that we always used in the past. is there a new official definition? I know it’s related to unemployment, but what’s the official metric? 
 

@John Carbone Wow you fix the article link but not on the post where I called out that it’s probably the KPMG CEO Survey? You gave no indication in your original post except that it was hot off the presses (it wasn’t). I also made several comments this week that the Fortune 500 were planning lay offs. That you’d see many announced in q4 (some already have since those comments) more will. 

It’s not news or surprising. It’s something factor into my numbers. Numbers you seeem to skip over by not commenting also on other 08 factors like unemployment, labor rate participation and subprime crisis that led us to a 28% market shift. Mean while unemployment that is the lowest it’s been in history, high wages, and no subprime crisis but somehow we will end up at 25%+ price changes.

I’ve been saying 10-20% shift since day 1. You post an article as a resource to pricing changes from realtor.com - that literally says the same thing. 

BTW Blackrock isn’t ever going to fail. If blackrock fails it means the entire world collapsed. IF you are predicting that please let us know. You need to go revisit where I explain how many assets there are or to @Carlos Ptriawan point whose assets those involve.

I’m not going to argue with someone who is calling for a 10-20 percent drop. I’m not saying black rock will go under. I said if their stock was ever 60-70 percent down, they could be In trouble. Never say never. People said same thing about Lehman and wamu in 2008. Again I’m not predicting this, but risk factor is >0 . if my article didn’t work I’m sorry, it was hot off the press, the JOLTS report showing 1.1m drop unexpected. I’m not comparing this to 2008 with job loses, lower home prices on lower transactions, nothing like 2008, stop trying to say I’m comparing it directly to 2008, way different environment now. 

 So I never said you were comparing it to 2008. I'm comparing the macro environments and what the downshift was 28% and saying we know we don't have subprime, we now jobs arent' where they were. So why would you predict close to 2008 like variations. The math as you like to say don't add to it. 

As to Blackrock, I think you need to look at assets under management and compare BR to the rest of the industry. And then go back to look at Lehmans and Wamu. It's not even close to the same scenario.  IF BR goes under the whole economy globally has collapsed. not just the US but globally. We are talking great depression type levels of destruction. That's how much valuation and assets would have to be destroyed to impact BR. 

So it's just more of a non factor in terms of worrying about them. Because if that happens cash, homes will all be worth nothing. It's kind of like predicting a post global breakdown. Who knows what will be worth anything and we will all be hurting so bad it doesn't matter. 

[Carlos Ptriawan]

This is the reply to some threads here showing apartment demands plunged in Q3. There's a new trend that rent is started to collapse as well.

https://www.realpage.com/analy... 

Apartment demand in 3rd quarter 2022 registered negative in 119 of the nation’s 150 largest metro area. Most were rather mild; however, weak demand resulted in more sizable vacancy gains (up to 1.5 percentage points) in a handful of markets led by the Desert region (Phoenix, Las Vegas) and Florida (Tampa, Fort Lauderdale, Orlando, Jacksonville, West Palm Beach).

The one notable exception was Nashville with 1,473 units absorbed – more than double the second-best market (Charleston at 656 units). However, even in Nashville, vacancy ticked up due to even more supply than demand.

A sharper downturn in the pandemic and a later recovery did not spare most coastal gateway metros. Quarterly demand went mildly negative in Los Angeles, San Francisco, New York, Boston and Washington, DC.

Effective asking rents fell month-over-month in September in 80 metro areas, but most cuts were rather mild. Las Vegas was the only major market to cut rents more than 1%, with rents there down 1.2%. Rents remained up year-over-year in every market.

[Jarrett King]

Quote from @Michael Wooldridge:

Quote from @John Carbone:

Quote from @Michael Wooldridge:

Quote from @John Carbone:

Quote from @Michael Wooldridge:

Quote from @John Carbone:

Quote from @Nick H.:

@John Carbone BTW one clarification - there's no concept of a "margin call" really. The equivalent here is really if they mess up on a loan covenant (or again, whatever the specific provisions of their agreement is w/ the bank on the loan) - then it could be called. The most common would be a DSCR covenant. The value of the home itself isn't directly relevant to that - it's just their ability to service the debt with the cashflow from the property.

In practice, given how much rents have gone up, they would likely need rents to drop, a lot, to have any DSCR issues.

 https://moneymarketadvisor.com...

It’s getting mainstream now, here’s an article today from realtor.com, wait until John Doe sees this. This pretty much sums up what we have all been saying in here except the “never crashers” led by super realtor James . 

https://www.realtor.com/news/t...

james should report this writer for spreading falsehoods. Everything discussed in the article has been discussed in this thread and “proven” by James to be false made up information. How does realtor.com allow such made up conspiracies on their website?

 Did you read the article? 

“Zandi believes home prices will fall about 10% nationally over the next 12 to 18 months if the country avoids a recession. If one happens, he anticipates price declines could approach 20% from peak to trough in 2024.”

IT also said don’t expect foreclosures. Don’t expect more homes to go up for sale - essentially reduced prices which is what a lot of us have been saying.

But hey I’ve been saying 10-20% depending on a few factors :). So I’m not opposed to your article. @Carlos Ptriawan 

https://amp.cnn.com/cnn/2022/1...

How will we even know when it’s a recession? We no longer use the definition that we always used in the past. is there a new official definition? I know it’s related to unemployment, but what’s the official metric? 
 

@John Carbone Wow you fix the article link but not on the post where I called out that it’s probably the KPMG CEO Survey? You gave no indication in your original post except that it was hot off the presses (it wasn’t). I also made several comments this week that the Fortune 500 were planning lay offs. That you’d see many announced in q4 (some already have since those comments) more will. 

It’s not news or surprising. It’s something factor into my numbers. Numbers you seeem to skip over by not commenting also on other 08 factors like unemployment, labor rate participation and subprime crisis that led us to a 28% market shift. Mean while unemployment that is the lowest it’s been in history, high wages, and no subprime crisis but somehow we will end up at 25%+ price changes.

I’ve been saying 10-20% shift since day 1. You post an article as a resource to pricing changes from realtor.com - that literally says the same thing. 

BTW Blackrock isn’t ever going to fail. If blackrock fails it means the entire world collapsed. IF you are predicting that please let us know. You need to go revisit where I explain how many assets there are or to @Carlos Ptriawan point whose assets those involve.

I’m not going to argue with someone who is calling for a 10-20 percent drop. I’m not saying black rock will go under. I said if their stock was ever 60-70 percent down, they could be In trouble. Never say never. People said same thing about Lehman and wamu in 2008. Again I’m not predicting this, but risk factor is >0 . if my article didn’t work I’m sorry, it was hot off the press, the JOLTS report showing 1.1m drop unexpected. I’m not comparing this to 2008 with job loses, lower home prices on lower transactions, nothing like 2008, stop trying to say I’m comparing it directly to 2008, way different environment now. 

 So I never said you were comparing it to 2008. I'm comparing the macro environments and what the downshift was 28% and saying we know we don't have subprime, we now jobs arent' where they were. So why would you predict close to 2008 like variations. The math as you like to say don't add to it. 

As to Blackrock, I think you need to look at assets under management and compare BR to the rest of the industry. And then go back to look at Lehmans and Wamu. It's not even close to the same scenario.  IF BR goes under the whole economy globally has collapsed. not just the US but globally. We are talking great depression type levels of destruction. That's how much valuation and assets would have to be destroyed to impact BR. 

So it's just more of a non factor in terms of worrying about them. Because if that happens cash, homes will all be worth nothing. It's kind of like predicting a post global breakdown. Who knows what will be worth anything and we will all be hurting so bad it doesn't matter. 

 Agreed. I think people have a hard time disassociating from 2008 because that's the "last time". I don't think we have anywhere near the degree of risk in the system for that to happen and if it does, like you said we're all f'd anyway. We can't expect once in a generation type downturns to become the norm. 

At the end of the day, for me, we look at the long term thesis and it's still very much in play. The housing shortage is real and any recession makes that worse. We saw new housing starts cease for years after 2008 and we saw it for a minute after March 2020. Higher rates and inventory additions slowing down doesn't help the situation. I think we'll see a slow down but not a long term one (pending Russia-Ukraine, supply chain stabilization, Fed rate hikes/cuts). 

[Steve Clifford]

Hey Greg,

Hope you're having a great week so far! I'm a Realtor in the Seattle, WA area. We've noticed a slow down in purchases due to an increase in interest rates and subsequently, a plateau in pricing. In my opinion, that's a fantastic thing for buyers. 

As little as a few months ago, we saw homes go for SIGNIFICANTLY over ask. Now, most go at or just below list, buyers don't have to waive much to ensure that their terms are better than their competition (largely because there aren't many multiple-offer situations anymore), and you might even see some seller concessions toward closing costs. I'm not licensed in TX and therefore don't have any experience in the Dallas market, but I'd assume you're starting to see some of the same market indicators there.

If you ask me, it's a great time to buy. Eliminating, or drastically decreasing, the probability of participating in a multiple offer scenario enables you as a buyer to have more leverage when it comes to negotiating price, terms, etc. Yes, you will more than likely pay more in interest right now, but when rates come back down (It's been predicted by a couple of sources that rates may be back down as low as mid 4% or so by next year), you can refinance at a lower rate, thus increasing your monthly profits on your investment property.

I have recommended to many of my clients that they take advantage of this highly unique opportunity in the market right now to secure a home and then refi later. 

I have heard a lot of people concerned that we'll have a crash similar to '08. There's a difference between a credit bubble and a housing bubble. In '08, ARMs (adjustable rate mortgages) got people into a LOT of hot water triggering an unprecedented amount of foreclosures. A massive amount of checks, balances, laws, and regulations have been put in place on the lending world to prevent this from happening again. 

What we're seeing these days relates directly to the Fed lowering interest rates to prop up the real estate industry through COVID which triggered a refi and purchase frenzy. Now that the frenzy has slowed due to the increase in rates (rates are still very reasonable nowadays, but certainly are nowhere the 2.5-3% that we saw during the pandemic), we've begun to hear more about a potential "crash". I honestly don't see it, but that is just my opinion. I'd be curious to see what others have to say.

Phew...I know that was a lot, but you hit on a great subject! Nice post, Greg!

[Greg R.]

Quote from @Ben Einspahr:

@Greg R.

My simple answer is economics 101. Supply vs demand. Recession, very possible. Crash, not likely.

How does a shortage of new construction negate 7% rates, hyper inflation, and people not being able to afford what's out there? My point has been around interest rates and overall market conditions. If the economy was strong, not experiencing hyper inflation, and interest rates were in the 3s-4s we'd be having a different conversation. 

[Carlos Ptriawan]

Quote from @Greg R.:

Quote from @Ben Einspahr:

@Greg R.

My simple answer is economics 101. Supply vs demand. Recession, very possible. Crash, not likely.

How does a shortage of new construction negate 7% rates, hyper inflation, and people not being able to afford what's out there? My point has been around interest rates and overall market conditions. If the economy was strong, not experiencing this kind of inflation and interest rates were in the 3s-4s we'd be having a different conversation. 

 yes, this is why I'm saying the same thing too when the rate is abnormal we as investors should stop thinking in one uni-dimensional way. When there's a financial crisis the demand side is collapsing as well as people now saving money and not increasing their disposable income. 

Too many folks repeat the same logic that works during normal economic activity, but during abnormal activity, those interactions/relationships are no longer working. 

[Greg R.]

Quote from @Michael Wooldridge:

Quote from @Carlos Ptriawan:

Quote from @Michael Wooldridge:

Quote from @Ben Einspahr:

@Greg R.

 I'm well aware of buyers will be sitting on the side for the next year. Overall home gap will still grow with the extreme stop builders are doing. Which is also going to keep rents up to your point.

So will less buyers be out there? Absolutely but at the same time there will be less homes for sale as buyers delay selling. 

What your missing here is that many sellers can't just wait it out & delay selling. We've already discussed the litany of reasons that force a sale. These situations are non-negotiable and are not going to wait for the selling conditions to improve. 

Buyers are in a much stronger position to hold strong and wait, sellers are not. 

[Greg R.]

Quote from @Steve Clifford:

Hey Greg,

Hope you're having a great week so far! I'm a Realtor in the Seattle, WA area. We've noticed a slow down in purchases due to an increase in interest rates and subsequently, a plateau in pricing. In my opinion, that's a fantastic thing for buyers. 

As little as a few months ago, we saw homes go for SIGNIFICANTLY over ask. Now, most go at or just below list, buyers don't have to waive much to ensure that their terms are better than their competition (largely because there aren't many multiple-offer situations anymore), and you might even see some seller concessions toward closing costs. I'm not licensed in TX and therefore don't have any experience in the Dallas market, but I'd assume you're starting to see some of the same market indicators there.

If you ask me, it's a great time to buy. Eliminating, or drastically decreasing, the probability of participating in a multiple offer scenario enables you as a buyer to have more leverage when it comes to negotiating price, terms, etc. Yes, you will more than likely pay more in interest right now, but when rates come back down (It's been predicted by a couple of sources that rates may be back down as low as mid 4% or so by next year), you can refinance at a lower rate, thus increasing your monthly profits on your investment property.

I have recommended to many of my clients that they take advantage of this highly unique opportunity in the market right now to secure a home and then refi later. 

Hey Steve, my week is going great, hope that yours is as well! I'd disagree about buying right now - mainly because values are still very inflated. You are 100% correct about the buying experience with multiple offers, seller concessions, etc. However, In my opinion prices are going to come down quite a bit - and that will be the opportunity to buy. Right now your getting the worst of both worlds. Peak bubble prices + incredibly high rates. 

[Steve Clifford]

Hey Greg,

I hear where you're coming from. My experience is only in Seattle and we have sort of a tech micro-economy here which tends to (not always but most times) insulate our housing market quite a bit from what's going on in the rest of the country. I do not anticipate our prices going much lower here, but that may not be the case in your area. If you can nab up some discounted homes in the near future, you should absolutely go for it and I hope it happens for you!

[Ben Einspahr]

Quote from @Greg R.:

Quote from @Ben Einspahr:

@Greg R.

My simple answer is economics 101. Supply vs demand. Recession, very possible. Crash, not likely.

How does a shortage of new construction negate 7% rates, hyper inflation, and people not being able to afford what's out there? My point has been around interest rates and overall market conditions. If the economy was strong, not experiencing hyper inflation, and interest rates were in the 3s-4s we'd be having a different conversation. 

@Greg R. 

Well a couple things to note on your response. Looking at todays current market conditions on a 5 year time line, yes it does not look good. But if you look historically, 30+ years, its not as bad as you are saying it is. To back my point, here is some data.

Housing affordability is at its average when looking at 30 year timeline 

Interest rates are still below 40'ish year average. Slide is a little out dated as the are closer to 6.75 right now

And if you think today is not good time to buy a house (rental property) because inflation rates are really high, historically speaking, that is not true. Real estate is one of the strongest hedge against inflation.

We have just been spoiled with low inflation. If you would like the resources I am pulling this information, would be happy to send you. 

Best of luck.

Ben

[Carlos Ptriawan]

Interest rates are still below 40'ish year average. Slide is a little out dated as the are closer to 6.75 right now

Hahahaha dude when we're paying the mortgage NOW I don't care about what's the rate my grandpa got 50 years ago LOL LOL

I could also say today's rate is cheaper than 1928 :) 

Perhaps some of you guys are either too much money or ignorant about the risk. 


[ this is one reason I stopped asking in BP for investment advice and use other rationale-investor QP level board to discuss the economy ]

[Greg R.]

Quote from @Ben Einspahr:

Quote from @Greg R.:

Quote from @Ben Einspahr:

@Greg R.

My simple answer is economics 101. Supply vs demand. Recession, very possible. Crash, not likely.

How does a shortage of new construction negate 7% rates, hyper inflation, and people not being able to afford what's out there? My point has been around interest rates and overall market conditions. If the economy was strong, not experiencing hyper inflation, and interest rates were in the 3s-4s we'd be having a different conversation. 

@Greg R. 

Well a couple things to note on your response. Looking at todays current market conditions on a 5 year time line, yes it does not look good. But if you look historically, 30+ years, its not as bad as you are saying it is. To back my point, here is some data.

Housing affordability is at its average when looking at 30 year timeline 

Interest rates are still below 40'ish year average. Slide is a little out dated as the are closer to 6.75 right now

And if you think today is not good time to buy a house (rental property) because inflation rates are really high, historically speaking, that is not true. Real estate is one of the strongest hedge against inflation.

We have just been spoiled with low inflation. If you would like the resources I am pulling this information, would be happy to send you. 

Best of luck.

Ben 

Ben, have you considered nominal interest rates as opposed to real interest rates? How about the CPI? 
A lot of people like to cite a time in the 80's when rates were were through the roof... but what was the circumstance around those rates? At one point in 1980 interest rates reached 13%, way higher than today. However, inflation was raging at 15%, making the nominal rate -2%. Take today's rates, let's just call it 6.75%. Inflation is currently at 8.25, making the nominal rate -1.5. When looking at the nominal rate, rates are higher right now than what they were in the 80's when the real rate was at 13%. 

When looking at housing affordability, we need to look at the CPI. Homes were much more affordable in the past compared to what they are now.

[Greg R.]

Quote from @Carlos Ptriawan:

Interest rates are still below 40'ish year average. Slide is a little out dated as the are closer to 6.75 right now

Hahahaha dude when we're paying the mortgage NOW I don't care about what's the rate my grandpa got 50 years ago LOL LOL

I could also say today's rate is cheaper than 1928 :) 

Perhaps some of you guys are either too much money or ignorant about the risk. 


[ this is one reason I stopped asking in BP for investment advice and use other rationale-investor QP level board to discuss the economy ]

Couldn't agree more. A vast majority of these historical analogies don't have any practical relevance in the current market. The conditions 30-40 years ago are pretty irrelevant to the conditions we're seeing today (for the most part).
And before anyone starts attacking me for not learning from history, blah blah blah, I'm familiar with historical trends and don't think they're of much significance in this market. 

[Jay Hinrichs]

Quote from @Greg R.:

Quote from @Carlos Ptriawan:

Interest rates are still below 40'ish year average. Slide is a little out dated as the are closer to 6.75 right now

Hahahaha dude when we're paying the mortgage NOW I don't care about what's the rate my grandpa got 50 years ago LOL LOL

I could also say today's rate is cheaper than 1928 :) 

Perhaps some of you guys are either too much money or ignorant about the risk. 


[ this is one reason I stopped asking in BP for investment advice and use other rationale-investor QP level board to discuss the economy ]

Couldn't agree more. A vast majority of these historical analogies don't have any practical relevance in the current market. The conditions 30-40 years ago are pretty irrelevant to the conditions we're seeing today (for the most part).
And before anyone starts attacking me for not learning from history, blah blah blah, I'm familiar with historical trends and don't think they're of much significance in this market. 

here is where i think history is important.. those that had very manageable leverage or free and clear assets got through the GFC.. if as some suggest here prices drop 30 to 40% this is going affect most every investor some markets rents will come way down and whats that going to do for the Max leverage investor or folks stop paying rent because no one is building houses and subs are out of work .. ?? so history does tell a tale of not getting maxed out on loans and not having SUBSTANTIAL reserves.. I mean just look at the threads during covid were those posting could only make 3 to 6 months if their rent did not come in. So historic data should skew folks to smart logical investing but also a dash of conservatism in the face of what's mathematically the best ROI or COC.

[Greg R.]

Quote from @Jay Hinrichs:

Quote from @Greg R.:

Quote from @Carlos Ptriawan:

Interest rates are still below 40'ish year average. Slide is a little out dated as the are closer to 6.75 right now

Hahahaha dude when we're paying the mortgage NOW I don't care about what's the rate my grandpa got 50 years ago LOL LOL

I could also say today's rate is cheaper than 1928 :) 

Perhaps some of you guys are either too much money or ignorant about the risk. 


[ this is one reason I stopped asking in BP for investment advice and use other rationale-investor QP level board to discuss the economy ]

Couldn't agree more. A vast majority of these historical analogies don't have any practical relevance in the current market. The conditions 30-40 years ago are pretty irrelevant to the conditions we're seeing today (for the most part).
And before anyone starts attacking me for not learning from history, blah blah blah, I'm familiar with historical trends and don't think they're of much significance in this market. 

here is where i think history is important.. those that had very manageable leverage or free and clear assets got through the GFC.. if as some suggest here prices drop 30 to 40% this is going affect most every investor some markets rents will come way down and whats that going to do for the Max leverage investor or folks stop paying rent because no one is building houses and subs are out of work .. ?? so history does tell a tale of not getting maxed out on loans and not having SUBSTANTIAL reserves.. I mean just look at the threads during covid were those posting could only make 3 to 6 months if their rent did not come in. So historic data should skew folks to smart logical investing but also a dash of conservatism in the face of what's mathematically the best ROI or COC.

Completely agree about lessons learned and everything you said - especially when we're talking about the big picture. However, I don't think that there's much value in looking at things like the interest rate from 50 years ago. 

[James Hamling]

Quote from @Jay Hinrichs:

Quote from @Greg R.:

Quote from @Carlos Ptriawan:

Interest rates are still below 40'ish year average. Slide is a little out dated as the are closer to 6.75 right now

Hahahaha dude when we're paying the mortgage NOW I don't care about what's the rate my grandpa got 50 years ago LOL LOL

I could also say today's rate is cheaper than 1928 :) 

Perhaps some of you guys are either too much money or ignorant about the risk. 


[ this is one reason I stopped asking in BP for investment advice and use other rationale-investor QP level board to discuss the economy ]

Couldn't agree more. A vast majority of these historical analogies don't have any practical relevance in the current market. The conditions 30-40 years ago are pretty irrelevant to the conditions we're seeing today (for the most part).
And before anyone starts attacking me for not learning from history, blah blah blah, I'm familiar with historical trends and don't think they're of much significance in this market. 

here is where i think history is important.. those that had very manageable leverage or free and clear assets got through the GFC.. if as some suggest here prices drop 30 to 40% this is going affect most every investor some markets rents will come way down and whats that going to do for the Max leverage investor or folks stop paying rent because no one is building houses and subs are out of work .. ?? so history does tell a tale of not getting maxed out on loans and not having SUBSTANTIAL reserves.. I mean just look at the threads during covid were those posting could only make 3 to 6 months if their rent did not come in. So historic data should skew folks to smart logical investing but also a dash of conservatism in the face of what's mathematically the best ROI or COC.

 Jay, this is exactly one of my points on how this market was front-loaded coming into this to NOT sustain a collapse. 

For example, covid hit and moratoriums came into play. Rents stopped for some, went to $0, and sat there for months. That just happened. That was a clearing event because those who could not sustain such, are now gone. Those who weathered it, experienced this, and took note and action from such. Preparing one self for a repeat because that had been the concerns and warnings of a reinstated similar potential, which thankfully did not come to pass. 

And after the dust settled, then those payments to recoup started coming in. 

Point is, the market was conditioned to weather a severe rental revenue reduction event. And those most at risk of defaulting in such event, they did, and cleaned out, leaving far fewer in that position today. 

And just a note, that was a 100% reduction in rents, beyond the fact that actions impacting ability to buy grows rental demand and tenant base so the entire rents dropping in mass doesn't make sense, point is a 30% reduction in gross rents is a lot more $ coming in then $0. 

As far as some going under, that happens every week of every year regardless of economy. 

[James Hamling]

Quote from @Carlos Ptriawan:

Interest rates are still below 40'ish year average. Slide is a little out dated as the are closer to 6.75 right now

Hahahaha dude when we're paying the mortgage NOW I don't care about what's the rate my grandpa got 50 years ago LOL LOL

I could also say today's rate is cheaper than 1928 :) 

Perhaps some of you guys are either too much money or ignorant about the risk. 


[ this is one reason I stopped asking in BP for investment advice and use other rationale-investor QP level board to discuss the economy ]

 The point, and why the CORRECT and ACCURATE statements that mortgage rates today are closer to normal then what they were, is because all the years rates were in this area, did everything collapse? No, that's the point. 

Persons are saying here how everything will come apart in some form of cataclysm from rates being where they are, and history shows that just is not true. Rates have been here before and in this area, a lot. 

It's very applicable that rates are far more normal today then they were last year. 

[Jay Hinrichs]

Quote from @Greg R.:

Quote from @Jay Hinrichs:

Quote from @Greg R.:

Quote from @Carlos Ptriawan:

Interest rates are still below 40'ish year average. Slide is a little out dated as the are closer to 6.75 right now

Hahahaha dude when we're paying the mortgage NOW I don't care about what's the rate my grandpa got 50 years ago LOL LOL

I could also say today's rate is cheaper than 1928 :) 

Perhaps some of you guys are either too much money or ignorant about the risk. 


[ this is one reason I stopped asking in BP for investment advice and use other rationale-investor QP level board to discuss the economy ]

Couldn't agree more. A vast majority of these historical analogies don't have any practical relevance in the current market. The conditions 30-40 years ago are pretty irrelevant to the conditions we're seeing today (for the most part).
And before anyone starts attacking me for not learning from history, blah blah blah, I'm familiar with historical trends and don't think they're of much significance in this market. 

here is where i think history is important.. those that had very manageable leverage or free and clear assets got through the GFC.. if as some suggest here prices drop 30 to 40% this is going affect most every investor some markets rents will come way down and whats that going to do for the Max leverage investor or folks stop paying rent because no one is building houses and subs are out of work .. ?? so history does tell a tale of not getting maxed out on loans and not having SUBSTANTIAL reserves.. I mean just look at the threads during covid were those posting could only make 3 to 6 months if their rent did not come in. So historic data should skew folks to smart logical investing but also a dash of conservatism in the face of what's mathematically the best ROI or COC.

Completely agree about lessons learned and everything you said - especially when we're talking about the big picture. However, I don't think that there's much value in looking at things like the interest rate from 50 years ago. 

 other than it appears history can repeat itself..  At least to a certain extent I highly doubt one year ago anyone could have imagine rates jumping up 4% in 4 months time. 

[James Hamling]

Quote from @Ben Einspahr:

Quote from @Greg R.:

Quote from @Ben Einspahr:

@Greg R.

My simple answer is economics 101. Supply vs demand. Recession, very possible. Crash, not likely.

How does a shortage of new construction negate 7% rates, hyper inflation, and people not being able to afford what's out there? My point has been around interest rates and overall market conditions. If the economy was strong, not experiencing hyper inflation, and interest rates were in the 3s-4s we'd be having a different conversation. 

@Greg R. 

Well a couple things to note on your response. Looking at todays current market conditions on a 5 year time line, yes it does not look good. But if you look historically, 30+ years, its not as bad as you are saying it is. To back my point, here is some data.

Housing affordability is at its average when looking at 30 year timeline 

Interest rates are still below 40'ish year average. Slide is a little out dated as the are closer to 6.75 right now

And if you think today is not good time to buy a house (rental property) because inflation rates are really high, historically speaking, that is not true. Real estate is one of the strongest hedge against inflation.

We have just been spoiled with low inflation. If you would like the resources I am pulling this information, would be happy to send you. 

Best of luck.

Ben

 Love the charts Ben, great visual aids. Helps to keep things in perspective vs emotional reflex actions. 

[James Hamling]

Quote from @Michael Wooldridge:

Quote from @Carlos Ptriawan:

[btw that thing about elasticility is not a reply to you ]

Good point. Yes if we see data we already see nationwide reduced rent growth and the demand for houses in low cap-rate/west coast/tech economy is also reduced hence inventory increasing. 

You always bring up a good point, I think from now on we should just say in the US we have two markets that are behaving in the true opposite 

(low cap rate/west coast vs east coast/high cap rate).

 Got you. And I agree. To me there are 3 final big elements to the US market:

1) Florida. IT's had west coast style growth but isn't slowing down. Now transplants to FL are primarily east coast (not all but a lot). So maybe thats why. but I'm very curious how that market reacts. It's also a very large market. On the other hand hurricane just destroyed homes so does that artificially keep prices high? But the big thing FLorida market is large enough to swing things in terms of median (sort of like Cali)

2) Global piece. IF the Fed breaks the economy al bets are off. I don't see that happening. but slightly worried about Credit Suisse. 

3) Ukraine - If that goes to the next level. All bets are off for everything.

Frankly the rest of the stuff as you said, you can see in the data it's been pretty consistent. There isn't a lot of other unknowns it's more about degree of how bad it gets which have standard deviations. 

Anyway we should know a lot more in next 75 days to be honest. I can promise lay offs are coming from f500 but they aren't these massive 15-20% lay offs that you typically see. They just don't have the elasticity in their workforce anymore. It's also much more likely to be industry specific. I.e. mortgages, tech to an extent (but less than people thing due to the skills shortage) etc.. 

 On #3, I have to say I am evolving my position on this front. As nuts as this may sound, I am starting to see a path that "next level" events there could usher in the most prosperous time since the end of WWII.    

There is a very real potential scenario coming into phase where Rus taking the next, be it horrific, actions we all fear, it could be a blessing in disguise. The events on the ground are showing a path that NATO forces could, very literally, steam-roll straight through Rus in a matter of days, if not measure in hours for taking control of main central points. Think of this, NATO advisors are on the ground, utilizing a force a fraction the size of NATO, with resources and tools significantly lessor then at NATOS disposal, to major successful degrees. 

Rus takes those actions, they just cleared a path to that united front taking such actions. The general Rus will is not of nuclear or world war, the actual ones moving with such, the boots-on-the-ground as it were, are doing such begrudgingly and in some cases now, at the point of a gun. That's fertile ground for mass surrender and defections. 

Imagine a world where Rus is off the map in terms of as an opposing world power. Thats a massive game changer for Europe, a massive stabilizing one. 

China looses it's largest backer and becomes isolated and for all intensive purposes, unsupported, opposing a united world/west. Lot's would change. 

It could be the catalyst for a level of world stability we have not know, really in the last 100yrs+. 

Imagine a world without competing superpowers. Maybe I drank the Cool-aid on this, it's possible, but I see a potential outcome that could be something we have never known in a very good way. Unfortunately, a few million may have to die for it, as has always been the case throughout history.