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. 

[Grant Tyler Short]

Lovely and entertaining discussion. These types of conversations appear to be occurring in every asset classes discussion boards. Interesting what declining values and prospects will do to those involved in a particular industry and how those individuals interact. But, also a sign of the times. 

I for one will be looking forward to declining real estate values. $2K a month rent for a 1 bedroom is ridiculous. If outlook doesn't improve in 6-12 months (which I don't believe that it will despite rising interest rates. Prices aren't falling at a rate fast enough to improve all time record home affordability), I will be migrating to a more cost effective area.

 I do not wish any specific individual failure as it relates to financial investments, however ( :) ) I have zero sympathy for the hogs that continued to feast, overleveraged their hands, and now are getting their jugular snipped.

[Carlos Ptriawan]

Quote from @Nick Robinson:

@Carlos Ptriawan
I skimmed some of the posts so someone may have mentioned this, but the market has been projecting a recession, at min. a decrease in economic activity for over a year. It was obvious 2yrs ago that big retailers were buying mass amounts of goods and that it was false demand for these products combined w/ supply chain issues. We were going to see a surplus of goods and thus disinflation if not deflation on goods. The Euro$ futures curve inverted last year at the beginning of Dec and the 10yr/2yr UST inverted in March of this year. With the UST inversion it has over a 90% success rate in calling a recession in the next 6-24 months with the avg being 16months. The one time it was "wrong" it inverted went positive reinverted and then you had a recession.

The #s that are being released are terrible. The Jobs data you are looking at takes raw data and puts it into logarithms to smooth out the trendline, so it is easier to read. Look at the Household survey #s FT jobs have declined in 5 out of the last 7months and this month we had a loss of 490k FT jobs. This data is a lot closer to reality seeing companies stop hiring and moving FT workers to PT. How about unemployment? The U-3 number is 3.7%, but a more accurate U-6 is 6.3%. Look at auto loans, Airbnb bookings. Based on the UST yield curve it was projecting Nov may be the last rate hike months ago and now seeing the 3mo/10yr invert for most of the week not looking good. We probably will still see a melt-up in stocks before the big crash. Once things start to break it spreads through the financial system like a virus and w/ all the leverage in the system no one knows how long or deep the upcoming recession will be and what it will affect.

Good post.

 I'm totally okay with this view, as major technical indicator indeed signals a very bad recession. There's no way the bond yield and backwardation has this shape and we don't get a recession. Totally agree, in fact, this is majority of the view. 

But Fed especially Yellen has a different view, they said we will have no recession.

It's extremely conflicting right? The fundamental like ISM is good, manufacturing activity is pretty good. I think in all fairness there're two scenarios in play :

1. Fundamental economy is so strong that it may be able to go against Fed policy. For example, most American corporate CEO decides to go against the Fed by increasing the price (which will cause additional inflation pressure).

2. OR , the fundamental economy has lags to Fed policy, maybe we'll see a more depressing economy next year. Maybe. But what we don't know, is whether when the time comes, the Fed would pivot or stick to its original plan. Even between Fed chairman has a different view on this. What all the Fed agree at this conjuncture is, the fundamental economy is still so strong that the Fed still has no pressure to reduce the hike rate.

It's literally Fed vs Market. So far market wins.  

What we know also, is that the Fed will avoid any possibility of crashes (market or sovereign) thru many mechanism.

[Carlos Ptriawan]

Quote from @James Hamling:

Quote from @Nicholas L.:

All I'm seeing so far at lower price points is... prices haven't gone down, while monthly payments have gone way, way up because of the increase in interest rates.  With inventory so low, it seems like this just creates pressure on people who need to buy homes to stretch.  As far as I know you don't get struck by lightning if you spend 40 or 50 or 70% of your income on housing... it's just a big strain on your budget.

Most of the examples of big price drops in this thread have been high six figure properties in overheated markets - I'd love to get an 800K property in Austin or Boise for 540 or whatever, but that's not the market I buy in or the price point I buy at =)

Thoughts from the group?  We've gone far afield - oil prices!  The future of political parties!  The Great Reset!  What about... house prices?  Anyone?  Bueller?  Bueller?

 I have posted on home prices about 40+ times in this thread. So far, everything is right on track as I forecasted it. Which to be honest, I wish I were wrong. I would have loved to be dancing in the streets snagging places for pennies on the dollar again. But it's simply not gonna happen. 

Yea, I keep reading your post very carefully and your thoughtful way of thinking is pretty much quite accurate especially from August to November. As someone that likes to study price chart and economy/liquidation theory, this specific time is extremely interesting. Between liquidity theory and the Fed policy, liquidity wins. It seems like there's external power beyond Fed that could control the market. 

The one that really amazes me is that when I see new listing = closed sales , then price is moving up/flat. This is so sophisticated. I was curious about this for so long.

[Carlos Ptriawan]

Quote from @James Hamling:

The top rung properties will now start having greater pricing compression although many buyers in that class are also very liquid cash buyers so it's not a universal response, strategic foreclosures are potentials in that level.    Rather universally, the lower rung of "affordable" housing will have a significantly higher basis pricing vs 2/3yrs ago. And we will see this consolidation there.    

This is quite spot on James. Here I have data supporting this theory, YoY growth for 1-3BR has increased value but 4 BR and up has negative YoY, this is a report from Google neighborhood. Other neighborhood has similar conjecture. It seems the price reduction is only affecting 2 mil houses/4-5BR.
This also means for middle-class housing, there is actually no price reduction, it could be just a statistical miscalculation when folks saying this market down 10% 20% or 30%.

[Nate Pucel]

@Greg Scott

Equity doesn't matter when you lose your job though.

[Carlos Ptriawan]

Quote from @James Hamling:

Quote from @Nicholas L.:

@James Hamling I agree with most of your 

Look, picture this. If you had $675million in liquid capital, what would your primary concerns be? Is it getting a 10%+ COC yield? Remember, it's $675 MILLION, not thousand. No, big epic profits are not a central focus because you already have more $ then you can spend. The #1 primary concern is NOT LOOSING much of it. When you have more then you can spend in 3 lifetimes it's not about making money, it's about PRESERVING your wealth. So for this, you look at assurances of safety. Real Estate is king, absolute KING in this to an extreme degree today vs all other assets for Capital Preservation. AND looking at a 4/5% yield on top of that, well holly-cow, it's X-mas!

People in Asia already purchased a Single family for the purpose of PRESERVATION OF CAPITAL since 1970s somehing. US folks are late for 50 years into the game lol.

Ok so we know now that the biggest landlord is perhaps BlackRock, we also know that real estate in US the most stable asset class. So how do international investors hedge and preserve their international capital? of course. By investing in USA real estate market, both primary and residential. 

So who invests the most in the biggest fund like blackrock,etc. It's Sovereign wealth fund, from UAE, Israeli to China governments.

[Carlos Ptriawan]

This is the actual Fed plan: The stock index movement is largely following the short-term liquidity injected by the Fed.
They did increase the Fed Liquidity in October for midterm election, so until midterm election the Fair valued SPX is at 3700-ish.
Now there's an announcement from Treasury basically to reduce their asset (it's so complicated),  post midterm until EOY, there would be more asset dumping by Fed until EOY. As a result EOY Fair valued SPX is at around 3400.

There's no crash, it's just that the Fed will reduce its balance sheet pretty heavily until EOY.

Also based on the latest Fed report, it seems they don't expect a home price crash either too. In fact, GFC 2008 has been predicted by the Fed (I am just aware of this) using their modeling,this time the model didn't indicate a crash.

[Nick Robinson]

@Carlos Ptriawan

Are you sure manufacturing has been strong? it has produced terrible results since July.

You put too much emphasis on the FED. The FED biggest tool is psychology. You can look back at previous FED minutes and they will even admit they have no idea what's going on. The Euro$ system is more important than anything the FED is doing. You really think the treasury buy back system is going to help? Buying back off the run treasuries and issuing out more on the run treasuries. Thats going to make things worse.

They papered over the last recession, and we have yet to recover. Recovering from a recession is coming back to the previous trend line. This has happened after every recession ever except for after the GFC. Just like the job market we brought back all the jobs that we had from Feb. 2020. This is not a recovery because to recover you need to create enough jobs to get back to how many there should have been if not for the recession.

I would not trust any of the FEDs models do you know how hard it is for those models to produce negative numbers? Have you looked at inflation projections from their models? It has shown for months a quick drop back to 2%. It shows that b/c their target inflation is 2% so their models produce those results. What are you going to tell me next because the NAR projected -8.8% appreciation in houses nationwide homes cannot drop below that.

[Carlos Ptriawan]

Quote from @Nick Robinson:

@Carlos Ptriawan

I would not trust any of the FEDs models do you know how hard it is for those models to produce negative numbers? Have you looked at inflation projections from their models? It has shown for months a quick drop back to 2%. It shows that b/c their target inflation is 2% so their models produce those results. What are you going to tell me next because the NAR projected -8.8% appreciation in houses nationwide homes cannot drop below that.

Good post. You bring many good points I would reply in a separate thread to make it focus.

The Fed model that I'm using is specific to real estate market only (not for inflation).

Here's the Fed model why they think there's no housing recession at this year around. You see below when the black line entered two standard deviation much before 2007, then it enter GFC 2008. The blue line also increases in 2007. This time in 2022, all these black and blue line is still in normal phase indicating credit facility and leverage in housing is still in the safe level. The black and blueline indicate the credit riskiness of borrower activity as aggregate output of leverage activity.

  

From Fed own words, I copy paste here :

..... Amid continued house price growth, just 1.9 percent of mortgage borrowers had negative equity in the second quarter of 2022
(figure 2.12). However, mortgages recently originated with low down payments are subject to entering negative equity quickly if house prices decline significantly. About half of recently originated purchase mortgages have loan-to-value ratios above 90 percent, a share that has been about
unchanged for the past decade. In addition, these highly leveraged mortgage originations tend to be associated with somewhat lower average borrower credit scores. Other measures of riskiness remained modest. Estimates of housing leverage when measuring home values as a function of rents and other market fundamentals increased in the first half of 2022, yet they remained significantly lower than their peak levels before 2008 (figure 2.13, black line). In addition, interest rate risk for mortgage borrowers is currently limited. The share of adjustable-rate mortgages in new home purchases rose to 10 percent in recent months but has been at or below that fraction since 2009. Moreover, available data suggest that the nonqualified mortgage share of purchase originations edged up, albeit from extremely low

So from Fed perspective, everything related to credit market and housing market is still looking green from Fed POV. The Fed argument is actually not much different than few BP article in this aspect.

I also have another data point, I found the reason why GFC 2008 happened is that the accelaration flow rate of home appreciation in 2008 is much greater than M2 Dollar supply flow rate. This time, we don't have that problem. I have another chart for that.

[Nathan Gesner]

LOL! I can't believe this thread is still going.

Fun to speculate for a moment, but it's surprising how many people think they can predict the future. For all we know, we can be led off to Babylon with hooks in our noses in the next year. Be prepared to flex, come what may.

[Nicholas L.]

@James Hamling

fascinating information and makes sense to me.

the only thing I'd add is - with the caveat that you have access to information that I don't - is that it still seems like the concentration in institutional investment is in the sunbelt.  not to say that they don't have investments elsewhere / everywhere - but it seems like the big markets are AZ, NV, TX, FL, GA, etc.  and so this distorts the numbers a little bit because there are other states where it's effectively 0.  thoughts?

[Carlos Ptriawan]

Quote from @Nick Robinson:

@Carlos Ptriawan

Are you sure manufacturing has been strong? it has produced terrible results since July.

my general comment on manufacturing :
- agree it's mixed bag, but the number is still far from recession zone, need to reach 40 to reach the contraction zone like in 2008. it's declining but still within expansion territory. Combined with better JOBS Fed use this reasoning to continue hiking
- the very reason why manufacturing slowing down is easily understood, it's interest rate hikes. It happened in 2019 too when Fed did QT. This time in 2022, the fastest rate of change of interest rate is causing two problems: Dollar that rise too fast and the possibility of self-induced recession hence both cause the new order to be lower external and internal. With dollar this high, the request for US order (export) plummeted, this is expected and I've mentioned this too three months ago. 
- So this is a chicken and egg problem right? If you want PMI to go up you need to reduce the interest rate to make the Dollar more affordable, but Fed think it could cause uncontrollable inflation. So far the manufacturing is still better than forecast hence they don't change their policy.
- my own personal view this inflation and the possible recession is self-induced and created on *purpose* by the Fed. Fundamentally economy in general is still okay, even in real estate market until November 2022 .

- Understanding what game the Fed is playing to us (AKA what's truly their agenda) is the key here.
WHat the hell is their agenda with their self man-made madness :) LOL is it even a policy error? LOL

[Carlos Ptriawan]

Quote from @Nicholas L.:

@James Hamling

fascinating information and makes sense to me.

the only thing I'd add is - with the caveat that you have access to information that I don't - is that it still seems like the concentration in institutional investment is in the sunbelt.  not to say that they don't have investments elsewhere / everywhere - but it seems like the big markets are AZ, NV, TX, FL, GA, etc.  and so this distorts the numbers a little bit because there are other states where it's effectively 0.  thoughts?

 They are primarily invest in balanced mid-cap market so they can capture both appreciation and cash-flows. They are the heaviest in GA.

[Carlos Ptriawan]

Quote from @Nathan Gesner:

LOL! I can't believe this thread is still going.

Fun to speculate for a moment, but it's surprising how many people think they can predict the future. For all we know, we can be led off to Babylon with hooks in our noses in the next year. Be prepared to flex, come what may.

 It's more than that actually. In the last 50 years, a sovereign country and millions of people wealth have been wiped out by Fed action, US Gov action, Clinton and George Soros.

So it's like the entire planet now is trying to smarten and frontrunning the Fed, that's the purpose of all these, for not to be killed by their stupid acts.

[Chris John]

I'm honestly very curious to know where this thread ranks in terms of number of posts.  Is there a way to filter BP threads based on number of posts?  I'd be curious to see where this ranks along with some of the other popular threads over the years.  

[Chris John]

@Greg R. has gotta be sitting back like this guy:

[Chris John]

Ah, it looked like I could link a youtube video.  Bummer.  It's the old "Wave Starter at a Baseball Game" from SNL.

:(

[Carlos Ptriawan]

Quote from @Chris John:

@Greg R. has gotta be sitting back like this guy:

Greg is busy visiting so many open houses in Dallas and screaming why these $300k house is sold for 500k ??  LOL

[Greg R.]

Quote from @Carlos Ptriawan:

Quote from @Chris John:

@Greg R. has gotta be sitting back like this guy:

Greg is busy visiting so many open houses in Dallas and screaming why these $300k house is sold for 500k ??  LOL

No, lol. Sorry guys, I have a real job that requires me to put in a lot of hours. Currently running a large conference. Will be back & active in next few days. 

look forward to catching up on everything. 

[James Hamling]

Quote from @Carlos Ptriawan:

Quote from @Nick Robinson:

@Carlos Ptriawan

 I think a lot of people on BP will not have a ready command of the dissemination of this data (simply put, what it means) so I want to add some translation into plain English for those: 

- "Amid continued house price growth, just 1.9 percent of mortgage borrowers had negative equity in the second quarter of 2022, However, mortgages recently originated with low down payments are subject to enter'ing negative equity quickly if house prices decline significantly.":    They are surprised. There was an expectation of different results, a "tampering down" on inflation and this is a Harvard/Yale way of saying "Wow, WTF, aaahhh, didn't expect that, WTF, aaahhhh, we did this rate thing and thought it would shazam things to being cheaper, huh, our bad.". And follows with an kind of veiled excuse of data which again, fancy Harvard/yale way of saying "oh, but, we could still be right, I mean, maybe, if if if, maybe". Because if Harvard/Yale teaches anything, it's that your always right ESPECIALLY when your wrong, never be wrong, blame blame blame. 

- "About half of recently originated purchase mortgages have loan-to-value ratios above 90 percent, a share that has been about
unchanged for the past decade. In addition, these highly leveraged mortgage originations tend to be associated with somewhat lower average borrower credit scores.":       FHA, there talking about FHA buyers. It's just signaling who there referencing, and that it's a standard demographic, nothing new, unique or changed. This also matters because FHA buyers are HIGHLY motivated to retain there homes because FHA buyers have more limited means of securing housing, generally speaking. For example, a person of strong liquidity, would be conventional qualifying, and in large part has financial means to secure additional housing and let old go, even survive say a $50k loss, it would suck but many can weather that. FHA persons in large part leveraged everything to secure that home, and NEED it, don't have those options to just walk away and buy other. These are people who will get 2nd, 3rd jobs if need be. 

- "Other measures of riskiness remained modest. Estimates of housing leverage when measuring home values as a function of rents and other market fundamentals increased in the first half of 2022, yet they remained significantly lower than their peak levels before 2008":       Reference to cap rates, because tight caps mean, usually, lowered investor interest and activity. It's saying it's not attractive for investment buyers BUT it's not the ugliest either. 

- "In addition, interest rate risk for mortgage borrowers is currently limited. The share of adjustable-rate mortgages in new home purchases rose to 10 percent in recent months but has been at or below that fraction since 2009.":       This is a reference too '08' collapse of the financial system, which was facilitated by resetting junk mortgages. It's signaling there is no ticking time-bomb lurking out there, that things are still super healthy in that manner. 

- "Moreover, available data suggest that the nonqualified mortgage share of purchase originations edged up, albeit from extremely low":       This is a little bit of a "Huh, didn't expect that" statement because it's signaling how much liquidity ($) out there still have, and that lot's of good credit, good income, cash ready buyers are still out there, which is your conventional mortgages. Without doubt a lot more non-QM activity was expected, and it's still at very low levels. It's also a statement of those providing non-QM, that there not pressing to capitalize on the opportunity so much as of yet. Which is an indicator that a lot more in offerings can still come in non-QM, which kind of gives them an excuse to keep pressing rates up making QM harder to get because it's an excuse of "Look, it's not that bad yet because if it were, NON-QM would be taking lead over QM, so, people must be a-ok with these rates, let's keep going". So it is also a signal of continued rate increase potentials because "the pain" is not showing in activity, at "pain" levels so to speak. 

[James Hamling]

Quote from @Carlos Ptriawan:

Quote from @Chris John:

@Greg R. has gotta be sitting back like this guy:

Greg is busy visiting so many open houses in Dallas and screaming why these $300k house is sold for 500k ??  LOL

 Lol. Isn't it funny how the guy who yelled "when your wrong you'll come on here and say it, SAY IT, right, RIGHT" sooooo much, is nothing but crickets and he is proven wrong, Wrong, WRONG-A-MUNDO! Sorry tin-foil-hat-club, still gotta "wait" for that end-of-everything collapse, again.......

[James Hamling]

Quote from @Chris John:

I'm honestly very curious to know where this thread ranks in terms of number of posts.  Is there a way to filter BP threads based on number of posts?  I'd be curious to see where this ranks along with some of the other popular threads over the years.  

 I heard that after 99 pages, Y2K happens and the internet breaks........ 

[Wendy Thurst]

@Bruce Woodruff

Looking at ARMs 3-5 years out now.

[Bruce Woodruff]

Quote from @Wendy Thurst:

@Bruce Woodruff

Looking at ARMs 3-5 years out now.

So you're saying to buy with ARM and then assume it will drop 3-5 out? As opposed to buying fixed and ReFi'ing?

[Michael Wooldridge]

Quote from @Bruce Woodruff:

Quote from @Wendy Thurst:

@Bruce Woodruff

Looking at ARMs 3-5 years out now.

So you're saying to buy with ARM and then assume it will drop 3-5 out? As opposed to buying fixed and ReFi'ing?

 I just did a 7 year arm on the last property. Trying to get rate similar on fixed (this was a month ago) required a ridiculous amount of points. 7 years is plenty of runway personally and I'll still refi. Saved me 1% and points on $500k.