Housing crash deniers ???
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.
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The market may correct, but I firmly believe there won't be a crash. The reason is simple, equity.
Before 2008 people with no income could get liars loans and buy much more real estate than they could afford. We heard stories of cleaning ladies buying multiple million dollar homes. When home prices starting falling, the whole thing collapses like a house of cards because nobody had any equity. They couldn't sell and get out. We had cascading foreclosures creating a downward spiral.
Recently, prices have been surging. Given the laws passed after the Great Recession, appraisals and lending is highly restricted. Appraisals have not been keeping up with prices and lenders won't lend above appraised value. We sold a house in 2021 and in one day had 20 offers. Several of them had acceleration clauses stating they would pay more than anyone else up to $X. Both of them waived any financing contingency because they KNEW the house wouldn't appraise for what they were offering. They had to make up the difference with cash. Those people have a ton of equity in their homes. If they had to sell, they might take a haircut, but they aren't going to get foreclosed.
There is no house of cards here to come tumbling down.
Either you didn't read the post (which I'm hoping is the case), or you are exposing your own lack of knowledge and understanding. Look up the date that FICO worked with the national credit bureaus to create a credit scoring mode. My comment about $.05 gas stated "these aren't the same times when grandpapi was paying $.05 per gallon of gas".
If you want to base your idea of things to come in the real estate market from data 50 years old, be my guest. I hope you don't drag down too many people with you because of your archaic mindset.
Apologies if that came off as harsh. My point is that when "know-it-alls" screw up and make a foolish move, they have too much pride and ego to come clean - hence we never hear from them. And I'm not referring to you or anyone specific.
Obviously not all flippers who purchased in Q1 lost their shirt, but a lot of them did. Don't expect any to come forward with their hands raised admitting it.
Just so we are on the same page as it seems you did not answer previously, define "crash" so we are all on the same page as to the definition or at least the definition you are using for this post
For reference, I have been flipping houses in Texas primarily but in many other states as well since 1990. Did very well in Q1 and frankly did a bit better than ok in 2007-09. Actually lost money on one flip of 1200 or so. I lost $1500 when I bought a home, had it sold and someone started a fire
At least in SF Bay Area, I have seen multiple flips gone wrong, at 1m to 3 m price point. One guy bought a property across the street from one of my rental for 968k, complete gutted the house and listed for 1.8-1.9 m a few months ago. It did not move. I went inside and it looked pretty nice. If he listed in Q1, he can easily sell for 1.8-1.9 m range. Now, he can not get 1.5m. Location, San Mateo, ca.
There are many more such flips that will not be known to average people. Actual investors are feeling pain. That is simply a fact. Denial will not help.
#2 Market Trends & Data Contributor
Some of these flippers are not good economic readers or they're just simply unlucky.
1) We knew from 2021 that Fed going to reverse QE in 2022. They started reserving QE on Jan 2, 2022.
2) Russia attacked Ukraine on Feb 27, 2022. Commodity skyrocketed and 10-year note reached new high a week later.
It's a perfect storm to melt-up the MBS market.
If the flipper bought in Q4 2021 they will see this problem.
Actually flipper in Bay area is losing money also in 2019 when Fed reduces QE.
Reading macro economy is actually more important than reading biggerpocket how much the cost a plumber, as if one can timing the market correctly , they can make good investment and avoid turbulent (not market crash) market.
If one refinances their house with 2% rate in 2020-2021 ; you are all good for 30 years and this market crash is just a blip in history.
btw if you use statistic from Zillow H.I. There's still no crash, only flat market nationwide. There are huge price reductions where there's oversupply like NV and AZ. Most CF market is weak but nothing crashed. Even Hawaii property is still appreciating higher than Bay Area. lol...
What's actually scary is the latest Fed Chairman seems to be okay for people to lose jobs and unemployment started rising as long as they can kill inflation.
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Jay, what makes you think you know anything about this subject? You've only been involved in this stuff for the past 50+ years 🤣🤣
I have been hearing about "the crash" pretty much since I arrived on these boards 8 or 9 years ago. I have no idea what metric "the crash" is, but what I do know is that investors like Jay have just plugged along and kept making money.
Frankly, I don't even see the point in a post like this. If you're wrong, you just look like a fool. If you're right, so what? What's your carnival prize if you win - rubbing it in the face of BP forum members?
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LoL Greg R, I love your discussions!
I agree 100% that there are plenty of DTI benders (heck, I use one!), but I can't imagine that'd enough to create a similar situation caused by all the subprime garbage that got securitized into high-yielding SPVs back before the GFC. The lender I use likes to 'cut corners' to help me qualify for various income properties and my family has used him several times in the past 5 years. Qualifying for a loan is still tough work that requires a remarkable amount of documentation. Very different from the lending environment leading up to the GFC, IMO. But it remains to be seen how much hidden junk gets exposed once all the moratoriums get lifted.
Instead of underwriting, I just think the cycle is resetting right now because we've had 12+ years of unprecedented growth with three years of ludicrously high price appreciation. And with interest rates moving away from their artificially low rates (due to pressure from TFG), buyers are reluctant now and the overall sentiment is that prices will drop.
I definitely think the market is going to reset. How hard the reset will be remains to be seen. In fact, it's already happening right now before our very eyes. Primary markets like LA and SF tend to lead these trends and I'm already seeing substantial cooling in my area...though the burbs are still holding steady.
#2 Market Trends & Data Contributor
I am also surprised why folks use the word "crash". Even the stock market is not crashing, it's just a slow decline and has rebounded before down again after the Fed chairman commented that they wanna kill the market.... for me it seems both stock market , job market and real estate market is quite resilient so far to what the Fed did.
Some people get killed, yes, like those flippers, but this has no impact on most of us that refi primary/rental in 2021. Food price inflation? buy in grocery outlets, the egg is still sold for $3 a dozen.
I also saw the actual hyperinflation in the past when inflation hit 80%. Do you know what happens to real estate after that ? it tripled in few years.
When prices drop, our portfolio will shrink in value on paper. Nobody likes that very much. However, I was amazed at how some folks keep refusing to accept the fact and keep denying price drop. Let us be honest. It does not matter what we call it, correction or recession or crash, it is a price drop.
What will happen next, keep dropping or stabilizing? Anyone’s guess. I start to see more people at open houses the last weekend. But will the market start to turn around? I am afraid not. Sellers are panicking and reduces their prices to move their listing. New listings are priced lower. Rates might keep going up.
Is this good or bad? Actually I like it. The price drop will create some potential buying opportunities for cash buyers. Violent price fluctuations are where money is made. By end of 2022, I think we will have a better judgement on the market condition.
#2 Market Trends & Data Contributor
All of this is to say that the Federal Reserve can raise interest rates and cause a recession to cool off demand.
But a decrease in demand isn’t enough. Inflation can only be tamed if there is a substantial increase in the supply of goods and services. And the Fed can’t really influence that.
Yet unless this happens, i.e. workers and businesses are once again free to produce, all we’ll be left with is stagflation: a recession combined with stubborn inflation that won’t go back to normal.
Now let’s go back to the beginning: do not overreact. The world is not coming to an end. ‘Stagflation’ doesn’t mean 20% inflation and 20% unemployment.
In fact it’s much more likely that inflation falls to 5%, unemployment rises to 8%… and the Fed will consider that a job well done.
It’s also temporary.
The constraints on supply being caused by political stupidity and geopolitical tension are, to borrow from the Fed, “transitory”.
While I generally place little hope in politicians, historically speaking, opposition candidates tend to win elections during economic stagnation. And that pattern should lead to more responsible, pro-business governments.
Then there’s the matter of our burgeoning energy crisis, which is also holding back supply.
This, too, is temporary. In fact the world is on the cusp on a new energy Renaissance that has the potential to fuel growth and prosperity for decades to come.
This is a really important (and uplifting) trend to understand, and we’ll discuss it very soon.
Last, rising interest rates and stagflation will likely have an adverse impact on both housing and the stock market.
Interest rates are a major factor in these asset prices; and higher rates mean that housing and stock prices will fall.
During the stagflation of the 1970s, home prices were relatively flat after adjusting for inflation. And stocks lost about 50%. But that was the average performance for all assets.
With housing, specific locations did extremely well. Home prices in Houston and California, for example, boomed during the 1970s, vastly outpacing inflation.
No crash coming :) Or should I say a crash is coming, so there's more houses for US to buy? LOL!
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The membership does not disagree with you that housing prices could or are correcting. They generally don't agree that prices will crash. Inflation adjusted prices were flat for 40 years from 1970-2010 and then more than doubled in the 10+ years since. There is a lot of room for prices to normalize some and only a small number of homeowners who did not ride it up in some form. Most of the people who bought an "overpriced" house in the last two years sold an "overpriced" house too.
Now, what really matters more than everyone's hot air is what we are all doing about it. “Don’t tell me what you think, tell me what you have in your portfolio.” ― Nassim Nicholas Taleb
Members like @Account Closed and many others that have replied to your prior crash posts don't buy properties with a high risk of extended vacancy or long-term value problems. They buy in growing markets, add value, use prudent debt, have reserves, and sleep well at night. We are "investors" not "buyers" and this is an investing forum. Even if you don't agree with many of the very experienced members who have replied to this and your other posts, I recommend focusing on what they are doing in this market...there are free, gold nuggets in their feedback. From them, I have learned how to succeed through the cycle and am making my largest investment to date right now (in AZ, a market that may "crash"). Why? Because I can build a one bedroom unit for $175k all-in next door to a 25 year old community that just sold for $490k per unit.
Life is not won in the forums.
@Greg R. big difference between a crash and correction.We are late in the cycle and are starting to see a correction -10% from recent interest rate juiced highs? Absolutely feasible. Worse? Maybe, depending on where you are. But rents and equity are high and inventory still low. I think 'people' have been sending caution signals for a bit actually.
I just wouldn't equate lack of boom mentality with a crash, unless you see real estate as having super easy money and instant gratification, which it really wasn't designed to do. Also, you have to answer the "compared to what?" question.
There is a nuanced and clever blog called "calculated risk" which is tracking this and has a lot of good insights.
@Russell Brazil real estate..." a business of 10 year cycles and 5 year memories"
I agree, we are investors and this is a critical matter when it comes to investing. There seems to be two camps, one being "buy now, now is always the best time to buy", and the "calculated/ strategic investor who strives to time deals". That is my main focus here. As an investor if I bought 6 months ago for 15% more or waited and saved that 15%, which is a better investment?
And to be clear, I bought in this bubble. I closed on a deal in January, so I'm not saying that there should be a prohibition against buying. In some cases it makes sense, but I think those are the exception. Like everyone else, you are welcome to form your own opinion and beliefs. If you have a good deal, by all means take advantage.
However, there is nothing wrong with investors timing the market and using real-life economical data to forecast our next move. This topic is fair for discussion as much as any other topic on this forum.
@Paul De Luca interesting point about gold. Do you think he factored into the conversation what impact Bitcoin would have had on the financial economy? Do you reckon people that might have put their money in commodities changed to Bitcoin and that has skewed the numbers ? Also the government has been feeding Americans with stimulus like it’s McDonald’s so perhaps things would or could have been different. I am not siding with Schiff just discussing the topic.
Completely agree. There are several deniers that are not accepting the facts. I also made the same point earlier about not wanting to argue about semantics/ definitions. Market is cooling, prices are dropping - that's a fact.
Ignore anyone who says impossible. But there has already been price declines not really a crash but prices have fallen where now is better deals then a month ago. Doubt it crashes though and it still would be way cheaper to have bought 2 years ago and we may never see that low of rates/mortgage payments again.
Frankly I don't know much about buying gold or other commodities but I understand that like any market the commodity market runs in cycles. But I think most people will continue to look at bitcoin as a speculative asset and not really a hedge against the dollar or stock market. That has been exposed in the last few years.
Can there be a crash if everyone "sees" it coming? If everyone is holding cash waiting for the buying opportunity of a lifetime, is it likely to really be the buying opportunity of a lifetime? Most people did not see the Great Recession coming and it was a real black swan event.
Trying to forecast a massive macroeconomic event is simply a waste of time. There are far too many variables and no possible way you could account for all things that will happen in the future. The problem with trying to time the market is that if you do "correctly" time the market, you think you're a genius but really you just got lucky. If things turn out poorly you may think you did something wrong but perhaps you actually just got unlucky.
I don't see a crash happening. 2008 was a once in a lifetime event and yet everyone now seems to use it as a benchmark for real estate slow downs.
In my market of Nashville, I have seen a 5-10% decline in prices from the highs of July. This will not be reflected in any data you pull on the MLS, realtor associations, redfins, etc. I know this to be true by looking at the most recent under contract prices vs closed comparable sales. In many ways, a correction has happened.
When rates started to rise, the stupid high price appreciation STOPPED! Now that rates are double from just a few months ago, buying power has been cut in half. Prices have most certainly come down-depending on price points some have been hit more than others.
Anyone saying that prices have and will continue to increase is looking at old data and not actively looking at the market on a daily basis. (speaking for my market only)
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Not 'everyone' can just hold cash and wait, that is a small percentage - even of our investment community....
Any slight downturn combined with a rise of interest rates will cause a lot of folks to stand back due to fear and discomfort. That presents an opportunity for others.....
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Market sentiment is the main driver from what I see and hear.
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