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Updated almost 2 years ago, 01/14/2023
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.
Quote from @Joe Villeneuve:
Quote from @Greg R.:
Quote from @Michael Wooldridge:
Quote from @Greg R.:
So for national median yes or specifically LV, Cali, Florida in particular during the last crash. Lot of markets recovered faster.
All that said I do think we will stagnation I’ve been saying that for months in this thread. But thats why I point to good deals now. If it’s not going to get much worse (and 5-7% more is not that big of a deal) then I’ll take good returns on cash now rather than letting it sit in the bank and lose money to inflation. All day long.
I'm personally not seeing many good returns at the moment, especially LTR. I bought a property in January and am operating it as a STR. I also converted another property I own to STR in August.
STR is pretty slow right now. Some areas more than other, but there is a lot of over-saturation w/ STRs and also a lot of governmental and regulatory barriers.
I'm doing ok w/ these two properties at the moment, but not where I want to be (20-25%+ COC).
In the meantime I'm looking to follow @Joe Villeneuve strategy and focus more on appreciation with "blue chip" properties. The strategy of putting 25% down on a 4-plex and getting a great return doesn't seem to be viable anymore - at least not for the time being. I'm seeing deals where you need to put 30-40% down just to break even.
1 - The least amount of cost to the REI (cost = cash out of pocket)
2 - How someone/something pays for the rest (terms).
Are you typically at 20-25%, or do you try to get in with less down?
#4 All Forums Contributor
- Plymouth, MI
Quote from @Greg R.:
Quote from @Joe Villeneuve:
Quote from @Greg R.:
Quote from @Michael Wooldridge:
Quote from @Greg R.:
So for national median yes or specifically LV, Cali, Florida in particular during the last crash. Lot of markets recovered faster.
All that said I do think we will stagnation I’ve been saying that for months in this thread. But thats why I point to good deals now. If it’s not going to get much worse (and 5-7% more is not that big of a deal) then I’ll take good returns on cash now rather than letting it sit in the bank and lose money to inflation. All day long.
I'm personally not seeing many good returns at the moment, especially LTR. I bought a property in January and am operating it as a STR. I also converted another property I own to STR in August.
STR is pretty slow right now. Some areas more than other, but there is a lot of over-saturation w/ STRs and also a lot of governmental and regulatory barriers.
I'm doing ok w/ these two properties at the moment, but not where I want to be (20-25%+ COC).
In the meantime I'm looking to follow @Joe Villeneuve strategy and focus more on appreciation with "blue chip" properties. The strategy of putting 25% down on a 4-plex and getting a great return doesn't seem to be viable anymore - at least not for the time being. I'm seeing deals where you need to put 30-40% down just to break even.
1 - The least amount of cost to the REI (cost = cash out of pocket)
2 - How someone/something pays for the rest (terms).
Are you typically at 20-25%, or do you try to get in with less down?
Lol @Greg R. three months and 2k+ posts later, and this thread is still goin' strong! --think it's safe to say you found a hot button topic!
I'm really interested in people's thoughts on when/whether rates will come back down (and if they do go down, how far they'll go)...I've heard widely varying (but equally well-justified) opinions on this, so it will be interesting to re-visit folks' predictions on the topic 6-24 months from now...
Quote from @Leo R.:
Lol @Greg R. three months and 2k+ posts later, and this thread is still goin' strong! --think it's safe to say you found a hot button topic!
I'm really interested in people's thoughts on when/whether rates will come back down (and if they do go down, how far they'll go)...I've heard widely varying (but equally well-justified) opinions on this, so it will be interesting to re-visit folks' predictions on the topic 6-24 months from now...
As to how low - it's hard to imagine we see 3-3.25% rates again in our life time. I'd be happy if we can get down to 4.5% again.
Quote from @Greg Scott:
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.
Greg, you can use something like property radar to travel a nicer neighborhood that you're familiar with and look at the notes/debt recorded. Do this for 10, 50, 100 homes and build some statistics of LTV to see what's really going on in your area and how much "correction" can be tolerated before people have no skin in the game. I think many people feel they were lucky to (cashout?) refi or buy new below 3% -- but if housing "corrects" as you put it, then combined with interest rates having nearly tripled, those people are stuck.
Many will have extracted (through cash out refi) all of the post-correction equity those that bought this year are in worlds of hurt - paying tops into increasing rates. Probably buying as much home as buying power will allow.
So those may be first to (again) walk away and default due to little to no skin in the game. If we learn from history, it only takes single digit defaults to get the ball rolling.
And as you say things ARE different this time.... we had large publicly traded buyers like $BLK (Blackrock) who would come in and push market higher. So those companies, each quarterly report they release to shareholders may have to.... make adjustments... to their holdings. Possibly similar to the way Fannie and Freddie managed their REO's?
But no worries! After another 7-10 year bankruptcy cycle to lock buyers out of rock bottom cash and courthouse steps deals, we can do it all over again.
#1 Market Trends & Data Contributor
Quote from @Leo R.:
Lol @Greg R. three months and 2k+ posts later, and this thread is still goin' strong! --think it's safe to say you found a hot button topic!
I'm really interested in people's thoughts on when/whether rates will come back down (and if they do go down, how far they'll go)...I've heard widely varying (but equally well-justified) opinions on this, so it will be interesting to re-visit folks' predictions on the topic 6-24 months from now...
why do you need people thought LOL :) You should just follow the Fed policy.
Fed slow down or reduce the rate, the 30YFRM would adjust accordingly, it has nothing to do with people LOL
#1 Market Trends & Data Contributor
Quote from @Jay G.:
Quote from @Greg Scott:
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.
Greg, you can use something like property radar to travel a nicer neighborhood that you're familiar with and look at the notes/debt recorded. Do this for 10, 50, 100 homes and build some statistics of LTV to see what's really going on in your area and how much "correction" can be tolerated before people have no skin in the game. I think many people feel they were lucky to (cashout?) refi or buy new below 3% -- but if housing "corrects" as you put it, then combined with interest rates having nearly tripled, those people are stuck.
Many will have extracted (through cash out refi) all of the post-correction equity those that bought this year are in worlds of hurt - paying tops into increasing rates. Probably buying as much home as buying power will allow.
So those may be first to (again) walk away and default due to little to no skin in the game. If we learn from history, it only takes single digit defaults to get the ball rolling.
And as you say things ARE different this time.... we had large publicly traded buyers like $BLK (Blackrock) who would come in and push market higher. So those companies, each quarterly report they release to shareholders may have to.... make adjustments... to their holdings. Possibly similar to the way Fannie and Freddie managed their REO's?
But no worries! After another 7-10 year bankruptcy cycle to lock buyers out of rock bottom cash and courthouse steps deals, we can do it all over again.
I am in that group of investor LOL, One thing that you forget is when we do refi I only refi up to 65% LTV so there're still lot of cushion from 2020 perspective. We have 2008 , 2001 experience with bear market so I personally careful not to over-leverage, but I'm not sure about others though :)
I really like all you "bear market/crash" group guys creating a bad/*****torm scenario that housing would crash and impact us.
Bring it on, it makes us smarter LOL
Quote from @Jay G.:
Quote from @Greg Scott:
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.
Greg, you can use something like property radar to travel a nicer neighborhood that you're familiar with and look at the notes/debt recorded. Do this for 10, 50, 100 homes and build some statistics of LTV to see what's really going on in your area and how much "correction" can be tolerated before people have no skin in the game. I think many people feel they were lucky to (cashout?) refi or buy new below 3% -- but if housing "corrects" as you put it, then combined with interest rates having nearly tripled, those people are stuck.
Many will have extracted (through cash out refi) all of the post-correction equity those that bought this year are in worlds of hurt - paying tops into increasing rates. Probably buying as much home as buying power will allow.
So those may be first to (again) walk away and default due to little to no skin in the game. If we learn from history, it only takes single digit defaults to get the ball rolling.
And as you say things ARE different this time.... we had large publicly traded buyers like $BLK (Blackrock) who would come in and push market higher. So those companies, each quarterly report they release to shareholders may have to.... make adjustments... to their holdings. Possibly similar to the way Fannie and Freddie managed their REO's?
But no worries! After another 7-10 year bankruptcy cycle to lock buyers out of rock bottom cash and courthouse steps deals, we can do it all over again.
Predicting bankruptcy crisis similar to last time is interesting. You do know many people bought a second home before walking away last time right? And it was because they were upside down 80-90k and they were willing to take the credit hit.
People won’t walk away from homes because they lost some equity. People walk away when they were upside down. Lending standards are very different.
Quote from @Carlos Ptriawan:
Quote from @Jay G.:
Quote from @Greg Scott:
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.
Greg, you can use something like property radar to travel a nicer neighborhood that you're familiar with and look at the notes/debt recorded. Do this for 10, 50, 100 homes and build some statistics of LTV to see what's really going on in your area and how much "correction" can be tolerated before people have no skin in the game. I think many people feel they were lucky to (cashout?) refi or buy new below 3% -- but if housing "corrects" as you put it, then combined with interest rates having nearly tripled, those people are stuck.
Many will have extracted (through cash out refi) all of the post-correction equity those that bought this year are in worlds of hurt - paying tops into increasing rates. Probably buying as much home as buying power will allow.
So those may be first to (again) walk away and default due to little to no skin in the game. If we learn from history, it only takes single digit defaults to get the ball rolling.
And as you say things ARE different this time.... we had large publicly traded buyers like $BLK (Blackrock) who would come in and push market higher. So those companies, each quarterly report they release to shareholders may have to.... make adjustments... to their holdings. Possibly similar to the way Fannie and Freddie managed their REO's?
But no worries! After another 7-10 year bankruptcy cycle to lock buyers out of rock bottom cash and courthouse steps deals, we can do it all over again.
I am in that group of investor LOL, One thing that you forget is when we do refi I only refi up to 65% LTV so there're still lot of cushion from 2020 perspective. We have 2008 , 2001 experience with bear market so I personally careful not to over-leverage, but I'm not sure about others though :)
I really like all you "bear market/crash" group guys creating a bad/*****torm scenario that housing would crash and impact us.
Bring it on, it makes us smarter LOL
Carlos, if you have property radar you should walk your neighborhoods debt to value. Take note of WHEN new debt was accepted too. It doesn't matter how cautious YOU are with LTV debt if your neighbors were not as cautious.
Quote from @Michael Wooldridge:
Quote from @Jay G.:
Quote from @Greg Scott:
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.
Greg, you can use something like property radar to travel a nicer neighborhood that you're familiar with and look at the notes/debt recorded. Do this for 10, 50, 100 homes and build some statistics of LTV to see what's really going on in your area and how much "correction" can be tolerated before people have no skin in the game. I think many people feel they were lucky to (cashout?) refi or buy new below 3% -- but if housing "corrects" as you put it, then combined with interest rates having nearly tripled, those people are stuck.
Many will have extracted (through cash out refi) all of the post-correction equity those that bought this year are in worlds of hurt - paying tops into increasing rates. Probably buying as much home as buying power will allow.
So those may be first to (again) walk away and default due to little to no skin in the game. If we learn from history, it only takes single digit defaults to get the ball rolling.
And as you say things ARE different this time.... we had large publicly traded buyers like $BLK (Blackrock) who would come in and push market higher. So those companies, each quarterly report they release to shareholders may have to.... make adjustments... to their holdings. Possibly similar to the way Fannie and Freddie managed their REO's?
But no worries! After another 7-10 year bankruptcy cycle to lock buyers out of rock bottom cash and courthouse steps deals, we can do it all over again.
Predicting bankruptcy crisis similar to last time is interesting. You do know many people bought a second home before walking away last time right? And it was because they were upside down 80-90k and they were willing to take the credit hit.
People won’t walk away from homes because they lost some equity. People walk away when they were upside down. Lending standards are very different.
Quote from @Jay G.:
Quote from @Michael Wooldridge:
Quote from @Jay G.:
Quote from @Greg Scott:
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.
Greg, you can use something like property radar to travel a nicer neighborhood that you're familiar with and look at the notes/debt recorded. Do this for 10, 50, 100 homes and build some statistics of LTV to see what's really going on in your area and how much "correction" can be tolerated before people have no skin in the game. I think many people feel they were lucky to (cashout?) refi or buy new below 3% -- but if housing "corrects" as you put it, then combined with interest rates having nearly tripled, those people are stuck.
Many will have extracted (through cash out refi) all of the post-correction equity those that bought this year are in worlds of hurt - paying tops into increasing rates. Probably buying as much home as buying power will allow.
So those may be first to (again) walk away and default due to little to no skin in the game. If we learn from history, it only takes single digit defaults to get the ball rolling.
And as you say things ARE different this time.... we had large publicly traded buyers like $BLK (Blackrock) who would come in and push market higher. So those companies, each quarterly report they release to shareholders may have to.... make adjustments... to their holdings. Possibly similar to the way Fannie and Freddie managed their REO's?
But no worries! After another 7-10 year bankruptcy cycle to lock buyers out of rock bottom cash and courthouse steps deals, we can do it all over again.
Predicting bankruptcy crisis similar to last time is interesting. You do know many people bought a second home before walking away last time right? And it was because they were upside down 80-90k and they were willing to take the credit hit.
People won’t walk away from homes because they lost some equity. People walk away when they were upside down. Lending standards are very different.
Very few people have negative equity. Half the country hasn’t even lost median value yet.
The other half has lost nominal. And historically we’ve had more cash down and cash deals on housing than ever before over the last 3-4 years. People have lost equity. But housing would have to drop quite a bit more before you’d have risk of people with negative equity.
#1 Market Trends & Data Contributor
Quote from @Jay G.:
Quote from @Carlos Ptriawan:
Quote from @Jay G.:
Quote from @Greg Scott:
Carlos, if you have property radar you should walk your neighborhoods debt to value. Take note of WHEN new debt was accepted too. It doesn't matter how cautious YOU are with LTV debt if your neighbors were not as cautious.
This is good point bro, but here's how it's being played out okay
1. High Inflation/High Interest environment usually lasts only maximum 24 months, after that, the new bull cycle is restarted. When new QE restarted price at very least is having modest/slow growth
2. Liquidity. In our area, the liquidity is around same like 2020 level, and pricing has regressed to Q3 2021, so in my own opinion, it is still pretty healthy so far, it was expected to reach that price point, it's not a crash, it's adjusted to long term average.
3. the majority of home owners now is having very large equity, only less than 1-2 percent of home ownership has negative equity per-Fed data.
4. Lot of people/companies with cash still waiting to buy when they feel the price is right
What you said is true, but what guard the market is the when Fed going to pivot (they say at the very latest 2024/2025) and liquidity is still give an advantage to homeowner.
However, if Fed decides to increase rate to 10% for 10 years then yes we will have massive collapse/crash scenario.
Quote from @Michael Wooldridge:
Quote from @Jay G.:
Quote from @Michael Wooldridge:
Quote from @Jay G.:
Quote from @Greg Scott:
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.
Greg, you can use something like property radar to travel a nicer neighborhood that you're familiar with and look at the notes/debt recorded. Do this for 10, 50, 100 homes and build some statistics of LTV to see what's really going on in your area and how much "correction" can be tolerated before people have no skin in the game. I think many people feel they were lucky to (cashout?) refi or buy new below 3% -- but if housing "corrects" as you put it, then combined with interest rates having nearly tripled, those people are stuck.
Many will have extracted (through cash out refi) all of the post-correction equity those that bought this year are in worlds of hurt - paying tops into increasing rates. Probably buying as much home as buying power will allow.
So those may be first to (again) walk away and default due to little to no skin in the game. If we learn from history, it only takes single digit defaults to get the ball rolling.
And as you say things ARE different this time.... we had large publicly traded buyers like $BLK (Blackrock) who would come in and push market higher. So those companies, each quarterly report they release to shareholders may have to.... make adjustments... to their holdings. Possibly similar to the way Fannie and Freddie managed their REO's?
But no worries! After another 7-10 year bankruptcy cycle to lock buyers out of rock bottom cash and courthouse steps deals, we can do it all over again.
Predicting bankruptcy crisis similar to last time is interesting. You do know many people bought a second home before walking away last time right? And it was because they were upside down 80-90k and they were willing to take the credit hit.
People won’t walk away from homes because they lost some equity. People walk away when they were upside down. Lending standards are very different.
Very few people have negative equity. Half the country hasn’t even lost median value yet.
The other half has lost nominal. And historically we’ve had more cash down and cash deals on housing than ever before over the last 3-4 years. People have lost equity. But housing would have to drop quite a bit more before you’d have risk of people with negative equity.
Housing has barely started to drop vs interest. Interest nearing 400% increase from lows? If interest stays lofty, or worse, goes higher yet... there'll be some adjustments. Not everyone has fixed rate. And many FHA buyers from past 36mo could not afford to be in the houses they're in if they had to buy it again today. They would be denied. The chain being as strong as the weakest links etc.. FHA ARM's?
Quote from @Carlos Ptriawan:
Quote from @Jay G.:
Quote from @Carlos Ptriawan:
Quote from @Jay G.:
Quote from @Greg Scott:
Carlos, if you have property radar you should walk your neighborhoods debt to value. Take note of WHEN new debt was accepted too. It doesn't matter how cautious YOU are with LTV debt if your neighbors were not as cautious.
This is good point bro, but here's how it's being played out okay
1. High Inflation/High Interest environment usually lasts only maximum 24 months, after that, the new bull cycle is restarted. When new QE restarted price at very least is having modest/slow growth
Be sure to notice the attempts of "slight" interest rate bump just before 2008/2009 crash. Peak (stock) market crash ~MAR 2009.
#1 Market Trends & Data Contributor
Quote from @Jay G.:
Quote from @Carlos Ptriawan:
Quote from @Jay G.:
Quote from @Carlos Ptriawan:
Quote from @Jay G.:
Quote from @Greg Scott:
Carlos, if you have property radar you should walk your neighborhoods debt to value. Take note of WHEN new debt was accepted too. It doesn't matter how cautious YOU are with LTV debt if your neighbors were not as cautious.
This is good point bro, but here's how it's being played out okay
1. High Inflation/High Interest environment usually lasts only maximum 24 months, after that, the new bull cycle is restarted. When new QE restarted price at very least is having modest/slow growth
new normal for next decade would be 5-7% I guess.
too much volatility in markets. It doesn't take much of an increase for very long of a time to cause a wreck (remember public companies report quarterly). You could probably overlay those avg mortgage rate trends on average housing price trends and see some nice correlations. Low interest = high prices, high interest = low prices. But what is "high" and how does leverage help define what is a "high" interest rate or interest rate increase? (refer to attempts to *slightly* raise rates from 2004 through 2008)
#1 Market Trends & Data Contributor
Quote from @Jay G.:
too much volatility in markets. It doesn't take much of an increase for very long of a time to cause a wreck (remember public companies report quarterly). You could probably overlay those avg mortgage rate trends on average housing price trends and see some nice correlations. Low interest = high prices, high interest = low prices. But what is "high" and how does leverage help define what is a "high" interest rate or interest rate increase? (refer to attempts to *slightly* raise rates from 2004 through 2008)
thats not the way to do it, market is 90% capable of predicting 1-2 year ahead of Fed terminal rate.
We may see 5% FFR in 2023 , and slowly moved back to 2.5% in 2025.
There's real no need to guess, we shall follow what the Fed told us.
The very big thing is to bring inflation, inflation would be 2% in 2025 per Ped.
Quote from @Carlos Ptriawan:
Quote from @Jay G.:
too much volatility in markets. It doesn't take much of an increase for very long of a time to cause a wreck (remember public companies report quarterly). You could probably overlay those avg mortgage rate trends on average housing price trends and see some nice correlations. Low interest = high prices, high interest = low prices. But what is "high" and how does leverage help define what is a "high" interest rate or interest rate increase? (refer to attempts to *slightly* raise rates from 2004 through 2008)
thats not the way to do it, market is 90% capable of predicting 1-2 year ahead of Fed terminal rate.
We may see 5% FFR in 2023 , and slowly moved back to 2.5% in 2025.
There's real no need to guess, we shall follow what the Fed told us.
The very big thing is to bring inflation, inflation would be 2% in 2025 per Ped.
>market is 90% capable of predicting 1-2 year ahead of Fed terminal rate.
I trade SPY options daily. This is wrong. Half the people believe a pivot is ... nope... ok next one... nope... ok definitely the next... nope.
Currency war happening now. Fed isn't messing around. But if you guess 20% before 2% you might have a 50/50 chance at being right. :(
#1 Market Trends & Data Contributor
Quote from @Jay G.:
Quote from @Carlos Ptriawan:
Quote from @Jay G.:
too much volatility in markets. It doesn't take much of an increase for very long of a time to cause a wreck (remember public companies report quarterly). You could probably overlay those avg mortgage rate trends on average housing price trends and see some nice correlations. Low interest = high prices, high interest = low prices. But what is "high" and how does leverage help define what is a "high" interest rate or interest rate increase? (refer to attempts to *slightly* raise rates from 2004 through 2008)
thats not the way to do it, market is 90% capable of predicting 1-2 year ahead of Fed terminal rate.
We may see 5% FFR in 2023 , and slowly moved back to 2.5% in 2025.
There's real no need to guess, we shall follow what the Fed told us.
The very big thing is to bring inflation, inflation would be 2% in 2025 per Ped.
>market is 90% capable of predicting 1-2 year ahead of Fed terminal rate.
I trade SPY options daily. This is wrong. Half the people believe a pivot is ... nope... ok next one... nope... ok definitely the next... nope.
Currency war happening now. Fed isn't messing around. But if you guess 20% before 2% you might have a 50/50 chance at being right. :(
dont use the the headline narratives or equity prediction, the future of the fed rate is summarized on bond yield, we know it will be 5% in 2023 like powell said, now with CPI back to 7-ish, there's a risk of over tighten, so they "may" change again. It seems we should see 4.5-5% FFR or inflation around 5% next year.
If we see the rate of Fed balance sheet, they have to burn dollar more to make it equal to 2020 level so it's not inaccurate if they're increasing rate to 5. I personally expect 30Y to be 6-7% next year.
Quote from @Jay G.:
Quote from @Michael Wooldridge:
Quote from @Jay G.:
Quote from @Michael Wooldridge:
Quote from @Jay G.:
Quote from @Greg Scott:
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.
Greg, you can use something like property radar to travel a nicer neighborhood that you're familiar with and look at the notes/debt recorded. Do this for 10, 50, 100 homes and build some statistics of LTV to see what's really going on in your area and how much "correction" can be tolerated before people have no skin in the game. I think many people feel they were lucky to (cashout?) refi or buy new below 3% -- but if housing "corrects" as you put it, then combined with interest rates having nearly tripled, those people are stuck.
Many will have extracted (through cash out refi) all of the post-correction equity those that bought this year are in worlds of hurt - paying tops into increasing rates. Probably buying as much home as buying power will allow.
So those may be first to (again) walk away and default due to little to no skin in the game. If we learn from history, it only takes single digit defaults to get the ball rolling.
And as you say things ARE different this time.... we had large publicly traded buyers like $BLK (Blackrock) who would come in and push market higher. So those companies, each quarterly report they release to shareholders may have to.... make adjustments... to their holdings. Possibly similar to the way Fannie and Freddie managed their REO's?
But no worries! After another 7-10 year bankruptcy cycle to lock buyers out of rock bottom cash and courthouse steps deals, we can do it all over again.
Predicting bankruptcy crisis similar to last time is interesting. You do know many people bought a second home before walking away last time right? And it was because they were upside down 80-90k and they were willing to take the credit hit.
People won’t walk away from homes because they lost some equity. People walk away when they were upside down. Lending standards are very different.
Very few people have negative equity. Half the country hasn’t even lost median value yet.
The other half has lost nominal. And historically we’ve had more cash down and cash deals on housing than ever before over the last 3-4 years. People have lost equity. But housing would have to drop quite a bit more before you’d have risk of people with negative equity.
Housing has barely started to drop vs interest. Interest nearing 400% increase from lows? If interest stays lofty, or worse, goes higher yet... there'll be some adjustments. Not everyone has fixed rate. And many FHA buyers from past 36mo could not afford to be in the houses they're in if they had to buy it again today. They would be denied. The chain being as strong as the weakest links etc.. FHA ARM's?
Bulk of loans have been fixed rate. Far more than ever before. That said ARMS are more popular this year. Which who cares? They will be refinanced in the next 5-7.
As to rates going higher? They will in December when the Fed raises another 50 basis points. IT’s not news. It’s expected.
Rate increases only matter if you buy. There is a reason why 2023 will likely have about 50% of the homes sold vs 2021.
As to FHA. For most markets they got pushed out of the market entirely, especially in the Northeast. They barely bought in the last 2 years. Not worried one bit about first time buyers.
#1 Market Trends & Data Contributor
From what I've seen and from talking to some very experienced lenders, seems that rates will stay in the 6-8 range at least through 2023, maybe longer. If I had to guess I would say we hang around there for another 12-18 months. From there we'll probably hang in the 5-6 range for a while - perhaps 2-3 years. Might dip into the high 4's here and there.
That would be my guess, but very hard to predict what's going to happen with politics, inflation , and the greater economy.
Quote from @Jay G.:
Quote from @Greg Scott:
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.
Greg, you can use something like property radar to travel a nicer neighborhood that you're familiar with and look at the notes/debt recorded. Do this for 10, 50, 100 homes and build some statistics of LTV to see what's really going on in your area and how much "correction" can be tolerated before people have no skin in the game. I think many people feel they were lucky to (cashout?) refi or buy new below 3% -- but if housing "corrects" as you put it, then combined with interest rates having nearly tripled, those people are stuck.
Many will have extracted (through cash out refi) all of the post-correction equity those that bought this year are in worlds of hurt - paying tops into increasing rates. Probably buying as much home as buying power will allow.
So those may be first to (again) walk away and default due to little to no skin in the game. If we learn from history, it only takes single digit defaults to get the ball rolling.
And as you say things ARE different this time.... we had large publicly traded buyers like $BLK (Blackrock) who would come in and push market higher. So those companies, each quarterly report they release to shareholders may have to.... make adjustments... to their holdings. Possibly similar to the way Fannie and Freddie managed their REO's?
But no worries! After another 7-10 year bankruptcy cycle to lock buyers out of rock bottom cash and courthouse steps deals, we can do it all over again.
Excellent perspective as always Jay. Great to see you. Hope all is well in your world.
I have more to gain with a market crash but I don't see it coming. 2008 market conditions of people who couldn't afford their homes to begin with are still not there and there's way too many home owners who locked in historically low rates and will just hold on to their homes during a recession. So while demand will and has already begun to soften so will the supply tighten up. The most I see is a moderate correction followed by extended period of flat prices.
Quote from @Carlos Ptriawan:
Quote from @Victor S.:
Quote from @Carlos Ptriawan:
Quote from @Greg R.:
Some other interesting news... A Federal Judge in Texas blocked Biden's loan forgiveness program. If this sticks and can only be possible through a bill passed by congress, it'll be dead in the water if the R's take the house.
I knew a couple people who were banking on this, so this would be a big blow to those who were expecting relief from their high intertest loans.
I think the biggest impact this year in the mega crash level would be the crypto wipeout. The impact in term of dollar is huge, maybe most Silicon VC now are 25% poorer after their stupidity :-) Their level of corruption inside the crypto business is amazing. Such in a way that the money coming from FTX is being re-invested to Sequoia (its own funder), that's Ponzi scheme.
But wait, there're a lot of folks here even in BP that restart to buy crypto LOL
Greg as long as there're crazy people there we don't know what would happen. Few years ago I thought NFT and Metaverse is joke.
Carlos, looks like even Mickey is freezing and/or laying people off now:
Disney planning 'targeted' hiring freeze, some cuts - CNBC (NYSE:DIS) | Seeking Alpha
So the problem with Disney is their margin is extremely small, only 2% (0.4B); their main source of income is largely from TV and park. Strangely, the income coming from the TV channels is much more than the park business while it's having higher operating costs.
It seems layoff in Disney Park is a great choice by the CEO. Stock should be up LOL
amazon - 10k workers. "Citing people with knowledge of the matter, the outlet indicated layoffs will be targeted among corporate and technology roles. Hiring had previously been paused in these areas while the company reviewed potential cost cutting measures and reassessed unprofitable ventures.
Within these divisions, the Alexa devices organization, human resources, and retail departments are expected to see the bulk of pink slips. "
https://seekingalpha.com/news/...