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 @Justin Fox:

@Michael Wooldridge

I think the reasoning is because when you quash demand through rates, you signal to markets to retract supply while simultaneously making any potential production ramp-up cost prohibitive.  The road to hell is paved with...

The next 12 months is going to be interesting.

 It seems that many are making a MAJOR mistake of thinking the raise in rates ELIMINATES buyers completely. It does NOT, it reduces there purchase capacity. ALTHOUGH the raise in rates DOES eliminate potential sellers, completely, because they simply choose rates are too high to make a home move at the moment so they just don't sell to buy now. 

Buyers coming from renting, or other housing, they are ONLY budget effected, not completely removed from purchasing. 

So the effect of rate increases is a disproportionate loss of sellers too renters. It creates LESS inventory, not more. Creating a more competitive market for buyers in low price tiers, a stagnation in middle, and downward pressure on top. Market Compression is the definition. 

[James Hamling]

Quote from @John Carbone:

A lot of fine print here. This was sent to me by someone in DFW. 

They really need to move this, offer valid until end of October (need to close by Oct 31) 

If you want to fight the fed, these could be some real steals for investors. 

Check out this one…20 percent off! 

 Don't ever walk into a Kohl's! You'll come running out screaming the end of the world is here, lol. 

It's a very standard format of pricing strategy, a mark-up to present a mark-down. Ever notice the furniture stores with a "going out of business sale" for the last 7 years? Ever notice auto dealers presenting "Deal Days".    It's standard marketing 101. 

[John Carbone]

Quote from @James Hamling:

Quote from @John Carbone:

A lot of fine print here. This was sent to me by someone in DFW. 

They really need to move this, offer valid until end of October (need to close by Oct 31) 

If you want to fight the fed, these could be some real steals for investors. 

Check out this one…20 percent off! 

 Don't ever walk into a Kohl's! You'll come running out screaming the end of the world is here, lol. 

It's a very standard format of pricing strategy, a mark-up to present a mark-down. Ever notice the furniture stores with a "going out of business sale" for the last 7 years? Ever notice auto dealers presenting "Deal Days".    It's standard marketing 101. 

So nobody paid full asking price in that area? They just do this with every development? For example, buyers in June didn’t pay 20 percent more? James, are you advising lennar on this marketing strategy?   I thought cutting base price was the last think builders ever want to do to protect the initial investors. I know I’ll never buy from lennar again. 

I know it’s just Zillow here, but here’s something just sold that’s 5 years old, similar square footage, and lennar selling new for 390k with the price cut, seems to me they thought they could get 490k (and may have from summer buyers)

i think the Zillow algos can’t keep up with the market shifting so fast. It’s understandable though. 

[Steve Vaughan]

It's not just new construction.   https://www.zillow.com/homedet... 

Started at $799k in May, closed at $632k a couple weeks ago. The Zestimate, which had been 1:1 with the price drops since June, is now $572k.

If they started at $725k, they most likely would've got that, plus.  Hope newer flippers are exited or only buying exceptional deals.

[Carlos Ptriawan]

James, as a realtor, can you guess estimate the builder cost for this particular house? by looking at the comps? any guess?

[John Carbone]

Quote from @Steve Vaughan:

It's not just new construction.   https://www.zillow.com/homedet... 

Started at $799k in May, closed at $632k a couple weeks ago. The Zestimate, which had been 1:1 with the price drops since June, is now $572k.

If they started at $725k, they most likely would've got that, plus.  Hope newer flippers are exited or only buying exceptional deals.

Yes this is happening A LOT. I know someone who had a property listed for 900k back in March, it was a bidding war cash deal multiple cash offers and he took one for 950k.  The owner wanted to float it for 6 months because he wanted long term capital gains for the full year. 20k earnest money was punted in September when buyer decided to not close. He Put it back on the market, no bidders now, and he’s down to only asking 750k and still no offers. This is real, no Walmart Kohl’s  BS marketing ploy. 

[Michael Wooldridge]

A Moodys advisor on inflation today: https://markets.businessinside...

It’s just one data point but according to him oil and and used cars alone could contribute to inflation falling in half in 6 months. 

Rent increases just flat lining could add to it.

One thing is for sure we are going to see some strong yo-yo effects of the market. Probably a lot like the stock markets did today. 

[Michael Wooldridge]

Quote from @John Carbone:

Quote from @Steve Vaughan:

It's not just new construction.   https://www.zillow.com/homedet... 

Started at $799k in May, closed at $632k a couple weeks ago. The Zestimate, which had been 1:1 with the price drops since June, is now $572k.

If they started at $725k, they most likely would've got that, plus.  Hope newer flippers are exited or only buying exceptional deals.

Yes this is happening A LOT. I know someone who had a property listed for 900k back in March, it was a bidding war cash deal multiple cash offers and he took one for 950k.  The owner wanted to float it for 6 months because he wanted long term capital gains for the full year. 20k earnest money was punted in September when buyer decided to not close. He Put it back on the market, no bidders now, and he’s down to only asking 750k and still no offers. This is real, no Walmart Kmart whatever BS marketing ploy. 

If it was happening a lot you’d see a lot bigger effect on prices thats over 20% alone. It’s definitely happening though, the house i just bought is one of those that could have easily got 20-25k more than they did had they listed at the correct price point originally but a lot of folks wanted to cash in.

That aside I do think flippers are going to get reamed. Too much volatility. 100% would not be into flipping unless you get an absolute steal. 

[Carlos Ptriawan]

Quote from @James Hamling:

Quote from @Justin Fox:

@Michael Wooldridge

I think the reasoning is because when you quash demand through rates, you signal to markets to retract supply while simultaneously making any potential production ramp-up cost prohibitive.  The road to hell is paved with...

The next 12 months is going to be interesting.

 It seems that many are making a MAJOR mistake of thinking the raise in rates ELIMINATES buyers completely. It does NOT, it reduces there purchase capacity. ALTHOUGH the raise in rates DOES eliminate potential sellers, completely, because they simply choose rates are too high to make a home move at the moment so they just don't sell to buy now. 

So what you're saying is basically buyer is downgraded to a lower price tier structure. 

Do you see lower priced home receiving more bids than higher priced homes in your specific market?

..

[John Carbone]

Quote from @Carlos Ptriawan:

Quote from @James Hamling:

Quote from @Justin Fox:

@Michael Wooldridge

I think the reasoning is because when you quash demand through rates, you signal to markets to retract supply while simultaneously making any potential production ramp-up cost prohibitive.  The road to hell is paved with...

The next 12 months is going to be interesting.

 It seems that many are making a MAJOR mistake of thinking the raise in rates ELIMINATES buyers completely. It does NOT, it reduces there purchase capacity. ALTHOUGH the raise in rates DOES eliminate potential sellers, completely, because they simply choose rates are too high to make a home move at the moment so they just don't sell to buy now. 

So what you're saying is basically buyer is downgraded to a lower price tier structure. 

Do you see lower priced home receiving more bids than higher priced homes in your specific market?

..

I’ll front run James’s reply for when he says “absolutely” so he doesn’t need to lie to us first. 

this is our buddies only listing right now and he’s sitting on a price cut and no contract yet priced below median home value. That “Kohl’s” strategy doesn’t seem to be working now. 

I’ll admit at a monthly payment sub $1700 though this should be flying, or scooped up by a realtor. That’s an easy $2500 a month rental with 10 percent annuals over 10 years the savy investor will be renting this sucker out for $6400 in 2032, what a STEAL! And in 2042 it will rent for $16,818! What an inflation protector this one is .

[Bruce Woodruff]

Quote from @Michael Wooldridge:

I'll say a couple of things on inflation: Every month of inflation going on makes it harder for it to continue. 

Oh, it could just be getting started. You must be young.

Look up the 70s - the 80s...

[Michael Wooldridge]

Quote from @Bruce Woodruff:

Quote from @Michael Wooldridge:

I'll say a couple of things on inflation: Every month of inflation going on makes it harder for it to continue. 

Oh, it could just be getting started. You must be young.

Look up the 70s - the 80s...

 Well aware of then. IF you think anything like that could happen right now you’d be crazy. Not to mention ignore it went on so long because the fed did nothing. They did something and the % point increases now have far bigger impact on $450k median prices than they did on the median home price of $48k. 

It’s just not a comparison. And wouldn’t have to get that far to collapse. Relative to back then though our fed now have been very reactive. Since the  fed was trying to push maximum employment back then. 

Ultimately though outside of the cheap money (which should have been address in 2017 in my opinion) there isn’t a lot that is not comparable then to now. 

[Bruce Woodruff]

Quote from @Michael Wooldridge:

The Fed did nothing? Between 1971 and 1982 they raised rates something like 50 times ( I forget exactly). I'm guessing you weren't there. You got this from a book, right?

[Alex Gurvitz]

When rates go up, the demand always comes down. One of the contributing factors to this, is due to the majority of US population being a W2 earner or on fixed income. Hence, many can no longer afford the property that they wanted, because the monthly Principle & Interest payment is that much higher after the interest rate increase. So if before the rate hikes they could afford a house worth $500,000 (-10% downpayment) knowing that a $450,000 mortgage is affordable, with a monthly payment of say $2,245/month at 3.5% rate. And now after the rate increases, the same mortgage amount equals to $2,998/m at a new 6% rate. And due to that $753 difference in their P&I payment, they can no longer afford that house. However, at the same time, most folks don't want to move to another area, nor do they wish to shop in a depressed or a less desirable location. And say, they love that particular school district, for their kids sake... Hence, they decide to wait until the rates come back down. And when that decision to wait occurs with 100M+ Americans - the demand goes down and so do the house prices. And this is a naturally occurrence driven by the Housing Market in order to compensate the potential remaining buyers. Because the lower the price - the lower the monthly mortgage payment. Moreover, this is a very basic and cyclical occurrence. In time, this will also created a good buying opportunity...

[Carlos Ptriawan]

Quote from @Michael Wooldridge:

Quote from @Bruce Woodruff:

Quote from @Michael Wooldridge:

Ultimately though outside of the cheap money (which should have been address in 2017 in my opinion) there isn’t a lot that is not comparable then to now. 

 Dude, the FED did (slow) QT between 2015 to 2019 after QE1 and QE2 in 2010 Bernanke era. But that's the era also where housing is booming. 

The current April 2022 QT project is just a reverse policy of QE in April 2020.

[Carlos Ptriawan]

So in this situation FOMO buyers meets greedy seller that manipulates by selling at a sigma three selling price LOL, the price behaviour in this home is similar to $AMC during gamma squeeze LOL

[Dakota Sullivan]

Quote from @Marcus Auerbach:

Before a real estate market will slow down, let alone correct or even crash you will see inventory go up. Inventory is a leading indicator and a necessary condition for a correction. As long as supply is critically low and demand is high there is no change. As long as we don't have at least 5 months of supply, this debate is pointless.

Anything is possible in this world, but a crash is just not in the data.

Actually things have been heating up again the last couple weeks after a slower July. Inventory is still super low, no additional inventory anywhere to be found, now seller's are clinging on to their 2.5% mortgages making inventory even more rare, meanwhile rents are going up and demand is strong - once a millennial has decided to buy a house and they have a baby on the way, there is no going back.

Agree supply and demand are the forces that really matter.

Demand has fallen and continues to weaken as mortgage rates creep up, stock wealth erodes and job insecurity rises.

But supply is still so tight, the impact is minimized.

Here in the Bay Area however, we're starting to see the other side of the equation shift. Beginning to see second homes come onto the market in places like Napa, Lake Tahoe, Reno as belts tighten. Now also starting to see STRs being listed, since belt tightening is creating a slowdown in travel. It'll be interesting to see AirBNB's earnings and forward guidance this quarter.

Next domino to fall may be folks laid off who need to downsize or relocate. Here in the Bay Area, everything hinges on tech. Several of the big companies (Intel today, Noom, Oracle, Twilio, DocuSign, Meta, others recently) have announced layoffs or hiring freezes. There are 182,000 tech workers in the Bay Area. Let's say 10% of tech folks are laid off before the recession ends. Other jobs depend on them--construction, banking, entertainment, etc. Net, net, let's say 20,000 people in the Bay Area lose their jobs and can't immediately replace that salary due to hiring freezes, general economic contraction.

Agree with Marcus that there's no way we see another 2008-style panic given all the factors he cites. However I do think there will be a lot more inventory of all types next year and many more highly-motivated sellers than we're seeing right now.

[Michael Wooldridge]

Quote from @Bruce Woodruff:

Quote from @Michael Wooldridge:

The Fed did nothing? Between 1971 and 1982 they raised rates something like 50 times ( I forget exactly). I'm guessing you weren't there. You got this from a book, right?

So at first they dropped it while spending from war and other programs was up AND inflation was at 6% in 1970. Between 71 and 72 they raised a bit but then dropped again. There is white paper after white paper how the fed chair was pressured by Nixon to keep interest low despite already high inflation - 9% fed rate in 69 down to 3.75 in 71. INflation is sky high and the fed lowers rates that much. There’s a reason why there is a large amount of economic papers and case studies on the great inflation period.

Between 72 and 74 you saw a lot of rate hikes you reference but that was literally after lowering ineterest while inflation was running rampant. So yes the Fed Chairman gave into Nixon at first. 

@Carlos Ptriawan the fed start raising in 16-19 finally but it could be argued they started late but what they really did in 19 was an abrupt turn when the markets had a bad shift after a hike and trump smacked down the fed. Had we not backed down maybe during covid we would not have had to gone to 0. But I’ll also say we probably should have started 25basis point hikes in 2021 if not by end of 2020. No idea why we didn’t with a strong job market. 

So what do we get in a period of almost 6 months the same level of hikes we took 16-19 to get and even then in July we dropped the rates again in response to some shifts in markets. 

[James Hamling]

Quote from @Carlos Ptriawan:

James, as a realtor, can you guess estimate the builder cost for this particular house? by looking at the comps? any guess?

 As a Realtor no, As a Building Contractor and someone actively in residential development, yes. 

[Carlos Ptriawan]

Quote from @Dakota Sullivan:

Next domino to fall may be folks laid off who need to downsize or relocate. Here in the Bay Area, everything hinges on tech. Several of the big companies (Intel today, Noom, Oracle, Twilio, DocuSign, Meta, others recently) have announced layoffs or hiring freezes. There are 182,000 tech workers in the Bay Area. Let's say 10% of tech folks are laid off before the recession ends. Other jobs depend on them--construction, banking, entertainment, etc. Net, net, let's say 20,000 people in the Bay Area lose their jobs and can't immediately replace that salary due to hiring freezes, general economic contraction.

I've been saying this a few times, when there's layoff in Bay Area, the earliest worker that is laid off is always the service/blue collar worker. The engineer is always the last, actually, tech jobs did increase to 7500 engineers this August alone. Here's the news https://www.siliconvalley.com/... 

My company is actually stopped the hiring freeze and aggressively hiring again and making engineer happy to beat inflation LOL  
the tech firms are trying to beat the Fed as well, and many tech co had aggressively saved cash in the past to prepare for downturns as they occurs. 

It's just weird to have layoff you know, when the backlog order is highest in history, the fed really screwed up things.

[Carlos Ptriawan]

Quote from @Michael Wooldridge:

Quote from @Bruce Woodruff:

Michael This is for you as you keep saying national rent never declines in 80 years :-)
In the last 3 years alone we have three dips in rental. The third wave of rental decline happened just very recently. 

National rent COULD decrease LOL

[Greg R.]

Quote from @James Hamling:

Quote from @John Carbone:

A lot of fine print here. This was sent to me by someone in DFW. 

They really need to move this, offer valid until end of October (need to close by Oct 31) 

If you want to fight the fed, these could be some real steals for investors. 

Check out this one…20 percent off! 

 Don't ever walk into a Kohl's! You'll come running out screaming the end of the world is here, lol. 

It's a very standard format of pricing strategy, a mark-up to present a mark-down. Ever notice the furniture stores with a "going out of business sale" for the last 7 years? Ever notice auto dealers presenting "Deal Days".    It's standard marketing 101. 

Lol, come on James. I'm in the DFW area and made about 4-5 offers on several properties toward the beginning of the year. Trust me, several months ago they would have gotten 50K over list at these prices. 

[Greg R.]

Quote from @Steve Vaughan:

It's not just new construction.   https://www.zillow.com/homedet... 

Started at $799k in May, closed at $632k a couple weeks ago. The Zestimate, which had been 1:1 with the price drops since June, is now $572k.

If they started at $725k, they most likely would've got that, plus.  Hope newer flippers are exited or only buying exceptional deals.

 Yup... here's a graph of the value.

[Carlos Ptriawan]

Quote from @Greg R.:

Quote from @James Hamling:

Quote from @John Carbone:

ginning of the year. Trust me, several months ago they would have gotten 50K over list at these prices. 

I think those all FOMO overbid buyers are created by the hallucinations of the realtors ... LOL the irrational exuberance meets agent that keeps saying we have no more house to sell

[Michael Wooldridge]

Quote from @Carlos Ptriawan:

Quote from @Michael Wooldridge:

Quote from @Bruce Woodruff:

Michael This is for you as you keep saying national rent never declines in 80 years :-)
In the last 3 years alone we have three dips in rental. The third wave of rental decline happened just very recently. 

National rent COULD decrease LOL

@Carlos Ptriawan rent data is messy as you pointed out earlier in this thread. ON an annualized basis which is what I was referencing it hasn't happened. Would love to zoom in on the dollars in that monthly swings refin one is there a link to the chart? Meanwhile annualized data from multiple sources: 

Or

 Or: