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Will the Real Estate Market Collapse in 2015?
Here's a provocative video...explaining we have a real estate bubble right now in 2014. When do you think this bubble will pop? Back in 2005 (after hurricane Katrina hit), I predicted a real estate collapse as well but I was mistaken by not predicting how severe it would be. My personal opinion is that we're also in another real estate bubble right now but as to when it will pop, no one knows.
What do you guys and gals think?
1. Do we have a real estate bubble right now?
2. When do you think it will pop if you say "YES" to the first question? and
3. Are you going to do anything differently in 2015 vs. 2014? If so, what are your strategies to prepare for a real estate crash?
I think the housing will have a correction, not sure if it will be in 2015 though, however I think there is a definite chance the stock market is going to take a major dive in 2015, possibly in the fall.
How do you guys think the stock market crashing will affect home prices
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not sure if history will repeat itself but many are probably too young to remember that the VAlues of SF and peninsula RE did CRASH in 1989.. right after the war started and the earthquake... you had high end values drop 50% across the board.. 2 mil dollar prime SF feel to under a million ( I know I had a loan on one) Prime Los Altos hills dropped in half along with a lot of the other areas of the peninsula.. Now for sure high tech was not as established as it is today and or as diverse.. there was no Google or facebook or linkdin etc. But it has happened.
I hear ya Eric. 75% that's a whole lot of crazy. I think Moodys on the macro level defines full employment as those who want to work can find employment but IDK if they account for the loafers etc...Their full employment theory makes sense as to wages rising in macro settings. There still is some debate on what full employment means as it is.
Originally posted by @Jay Hinrichs:
"Too many properties were sold for CASH the last 6 years.. In some areas over 50% of the properties were bought with cash..."
@Wendell De Guzman, thanks for starting this thread. I do not have the the education nor have I read enough data to give an educated opinion on bubbles especially in a national scope, but here are my uneducated thoughts.
1. Do we have a real estate bubble right now? I do not believe so in the areas I know about.
2. When do you think it will pop if you say "YES" to the first question? Not in the near future, but if the right economical events occur we will see some significant corrections.
3. Are you going to do anything differently in 2015 vs. 2014? If so, what are your strategies to prepare for a real estate crash? I plan to buy as many houses as I can but will try for either better cash flow margins or better up front equity. I will concentrate on other markets when possible where I think growth will come.
To my uneducated views housing bubbles must include some overbuilding. In the mid 2000 decade the amount of houses being built was massive. You can drop demand by moving into your parents basement and by becoming homeless, but oversupply is what I believe drives the biggest bus in bubbles. Economy also plays a role. Take 50% of the jobs out an area and you will see housing prices drop. Folks will move to better employment areas and you will see multiple families living in one dwelling. The cheap loans with no real qualifications spurred more building in my opinion, as prices rise new houses become more desireable as cost of building comes near current prices for houses.
I have seen 2 very harsh boom busts in my area as well as a few small ones. In my area it is also supply and demand, but the problem is that huge amounts of folks leave my area when our local economy falls because nearly all of them are recent residents who moved here for the jobs. Oil, gas, and coal are the massive drivers of my states economy. We do have some nice industries like trona, tourism, agriculture, etc, but make no mistake we are an energy driven state. there is a massive boom in our state currently because of things like the Bakkan oil drilling in North Dakota, the massive oil shale recovery going on from Casper to Colorado, coal production in the powder river basin, and lots of secondary recovery from old oil fields.
The recent drop in the price of oil has sent more shivers through me than the housing drop in 2008 because it hits local so hard. About 80% of our local tax base is from oil and gas and many of those fields are old and in secondary oil recovery. We have lots of workers who drive to North Dakota to work for 2 weeks on and come back for their 2 weeks off. We have a lot of oil field service companies, chemical additives for oil wells, drilling pipe, motor rewinding, dirt contractors, construction/moving equipment, rental equipment, workover rigs, consultants, etc.
I know @Karen Margrave doesn't want political information, but ignoring politics in this is ignoring reality, especially for my state. The current administration has waged a war against coal that is killing our number one cash cow. It is now impossible to build a coal fired power plant that is profitable with the current regulations. We will probably see a full third of our coal fired power plants shut down prematurely in the next 5 years or less if regulations do not change. If that trend does not halt or reverse our local economy will take some hard hits. That is offset somewhat by increased natural gas demand, but with inventories soaring and oil prices dropping if that trend continues jobs will leave my state. Let oil drop anywhere near where production costs are for shale oil recovery for very long and you will see prices on real estate drop by 50% or more. Again I have seen this at least twice in my lifetime.
The good thing is that overproduction of oil, gas, and coal is great for the national economy. It is easier to start and run a business with energy costs down 30% and no one drawing high school graduates away from local employment for $25 to $30 an hour jobs that require no formal education. The oil field also has a massive amount of jobs for tradeskill workers of well over $100K per year, and many make 2 or 3 times that. Those will go away as well.
I believe the national economy will begin growing at a slow but improved rate, I see energy struggling for a bit then coming back at a little more calculated rate, and less of a frantic rate. I will invest more in other markets. All of this is of course going to be influenced widely by politics good or bad in ways I cannot predict now.
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@Jerry W
our thoughts are timely to this Bloomberg article.
http://www.bloomberg.com/news/2014-12-31/civeo-sin...
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Originally posted by @Kendall T.:
I think the housing will have a correction, not sure if it will be in 2015 though, however I think there is a definite chance the stock market is going to take a major dive in 2015, possibly in the fall.
How do you guys think the stock market crashing will affect home prices
I am of the same opinion as you. Usually, when the RE indexes start to fall, it is reflected in the real world after 3-6 months. However, note that we are in a market that is very artificially manipulated, so the outcome may either be mild or more exaggerated.
Ever since the big hedge funds like Blackstone, Empire Residential, American Residential, and Colony Residential started buying "massive" amounts of SFH here in Phoenix (and elsewhere) people have been predicting a crash when these homes are sold.
These are the facts, Blackstone and the others own approximately 13,000 SFH's in Maricopa County, AZ (basically the metro Phoenix area). There are at least 910,000 owner occupied homes in Maricopa County so they own approximately 1.4% of the homes in the county. We have about 30,000 homes on the market at any given time. In addition, nearly all of the homes they bought were smaller, starter type homes which are in very high demand here. I suspect EVEN IF all the hedge funds got together and decided to list their homes at the same time (unlikely) that they would be easily absorbed into the active inventory and sold within 90 days. Plus, there's no evidence that their business model is to make a quick buck by selling. All these homes are rented and shooting off cash flow to these hedge funds.
To date, only a dozen or so of the 13,000 homes have been sold.
AND, to answer the topic of this post, IMO the Phoenix market is extremely stable right now with very few new listings being added and demand starting to pick up from a slow 2014. Definitely no crash here in 2015. I wouldn't pretend to be smart enough to comment on other markets.
@Albert Hasson thank you for putting those numbers into perspective. You stand correct on what you have mentioned above and this link backs it up for you (and clarifies it for me/us). I thought they had a huge chunk and I am assuming that from what is under them in the Central FL area.
You also stand correct on their cash flow model. My only assumption of them selling out a nice part of their portfolio is because they have over bought and may want to balance their portfolio accordingly.
http://www.cnbc.com/id/100701436#.
1. No. Everything seems pretty stable so far ;)
Does anyone remember the 2007-2008 timeline?
My experience was this:
March 2007
I could almost do double closings with cash out refi's from appraised value based on a number I gave the bank with only my credit score.
May 2007
Loan products changed daily.
June 2007
One of our clients with an 820 credit score, $1.6 in assets, and no debt could not get a low-doc $80K loan based on his $1700 social security checks because he had too much available credit.
June 2007 - March 2008
Continued exuberance. Bankers: "No problems. Minor correction"
March 2008
Bear Stearns Collapse
Bankers: "Yeah. They were over leveraged and poorly managed. Nothing to worry about."
Fall 2008
Lehman Brothers Collapse
Housing prices collapse
Bankers: "Holy S*#t!"
TARP
Obviously, nothing like that is happening today and we had over a year of indicators before actual housing prices tumbled. Plus, as others have mentioned, 5-6 years of lower than absorption new housing starts and pent up first-time home buyer demand means there's plenty of demand if confidence remains stable.
Things may not go up everywhere, but collapse is much too strong a word for 2015.
Happy New Year!
Btw UCLA predicted the whole real estate collaspe in 2006, not that it took much effort to realize and understand that. I see this run up as more realistic vs anything last decade. Especially considering all the cash buyers and the ability for them to absorb any outcome now.
@Eric Bowlin I'm pretty optimistic about Massachusetts Real Estate but B&T wrote Monday that our Foreclosures Petitions are up in November 150% year over year.
When we see house prices rising and DOM dropping it's easy to forget the employment numbers that haven't really turned around or the huge student loans I'm seeing when I take mortgages for what should be First Time Homebuyers.
And I agree it's hard to believe the number of able bodied folks that are now on some kind of disability!
Originally posted by @Jay Hinrichs:
not sure if history will repeat itself but many are probably too young to remember that the VAlues of SF and peninsula RE did CRASH in 1989.. right after the war started and the earthquake... you had high end values drop 50% across the board.. 2 mil dollar prime SF feel to under a million ( I know I had a loan on one) Prime Los Altos hills dropped in half along with a lot of the other areas of the peninsula.. Now for sure high tech was not as established as it is today and or as diverse.. there was no Google or facebook or linkdin etc. But it has happened.
@Jay Hinrichs I can't speak to $2,000,000 houses in 1989 but I can say it was felt much less by the median home price. First to be fair, most housing probably doubled between 1986 and 1988. Now my 1986 purchase saw the doubling in two years but ONLY saw about a 9% decrease although it was flat for a few years. I can imagine the decreases in the 80's over the higher valued properties since it was all about Wall Street and the greed.
Bubble? Not in solid mid range properties in SF Bay Area and Honolulu.
Edward Leamer
Maybe Bruce knows him well I imagine.
riginally posted by @Mike Hurney:
@Matt R. first guy in your video seems like a crackpot, with working age available folks is he accounting for undocumented aliens.
And how's the elderly population going to 0 in 2025?
I like Bruce Norris's fact based predictions.
From an international investor's perspective I think RE in the U.S. is still attractive (and cheap) in many markets. There is still an incredible amount of good fundamentals, transparency and data available when compared to the other RE markets of the world... and prices in the big cities of many countries worldwide are usually more expensive and even yield less. Not to mention that you are exposed to their local currencies which recently have not done too well when compared to the US dollar. The way I see it is that overall I think things are OK, but looking deeper every state is like a different country... and even within each state, different counties, cities and towns are all different, so it really depends.
If there is a big worldwide economic crash in 2015, investing in real estate might even be a good way to protect your wealth.
I think if you are quite conservative and do not leverage up too much, look for a good yield and focus on markets that are diversified and not only reliant on a few industries, then I believe everything will be OK.
So yes, I do see some RE markets in the U.S. having bubbles while most do not. It is possible that those few markets with bubbles will pop in 2015 especially if oil prices continue to stay low throughout the year. In 2015 I will definitely be cautious while investing but I plan to still be active and hope to find some good deals.
Wishing everyone a happy new year and all the best for 2015!
I am a novice and trying to understand the logistics of this proposed "bubble". Are we saying that current properties are overvalued and because of the likelihood of an increased interest rates, the price of said properties will contract? Contract to the point of creating mass hysteria resulting to further bottoming of prices? I am not following. Maybe in some points of the country but I think properties, well at least in florida are undervalued. Even if you had the land I don't think you can even build a house for the same price that you can purchase them currently. If the prices drop even further, I think I would be in heaven because I will clean up.
Wasn't it the loss of tons of jobs that really caused a panic and collapse in the housing market? I don't know, I wasn't really paying attention back then. But, even if home prices fell, but everybody kept their jobs, it seems to me everybody would have continued to be able to make their payments and values may not have plunged like they did. Sure people might not have liked being trapped in their house, but at least they wouldn't have been forced to foreclose.
Seems to me that there is nothing that worrisome on the horizon. Seems to me that, at least officially, the government is still worried about deflation, and thus not likely to raise rates much if at all in the next year. If they start adjusting rates upward very slightly, maybe that levels off the increase in values but I don't think we are in for any kind of dramatic fall.
Just my opinion.
The thing with calling bubble is if you do it enough times eventually you will be right. I don't see this bubble as major as 2008 but a correction for sure is in store. Will it pop in 2015? Who knows. The fundamental issue is lack of inventory which is causing rising prices. Once construction ramps up which I think it will in 2015 prices will reduce.
I didn't read through all of this, but I don't understand how so many people can have such confidence in whether we are in a bubble or not or when the tide will turn. There are a lot of people that sat on the sidelines in 01 and 02 because prices were going up so much and missed the opportunity to get in for a long time. Sure you feel great if you line it up perfect, but there is no way to know. I would rather focus on the aspects of the market that are easier to predict and control than looking to "guess" the opportunity to buy.
My favorite litmus test is:
Can a young couple/family earning a typical entry level wage in your market afford a starter home?
In my market 2 Wal-Mart cashiers could afford a 3/1. But the problem is that that's not representative of the typical buyer or inventory here.
Wm
Originally posted by @J Scott:
Originally posted by @Aaron Mazzrillo:
FYI - 65% of statistics are made up.
It's actually closer to 82%, according to my data.
Since both the above are statistics of statistics. Should we consider that made up? :-p
The below statement is in regard to the Las Vegas market.
I agree that the market is completely different than in 2008 (as we are not nearly as leveraged as we were, buyers now have skin in the game in regards to down payments, most investment properties create positive cash flow vs 2008's negative cash flow appreciation game, and a lot more properties are owned out right vs financed) but there is no arguing that inventory has been rising week after week for months and continues to rise. Buyer demand has also cooled off. With the holiday season quickly approaching I don't see demand picking up anytime soon either. CAP rates have decreased from around 12% to about 4% on most rental properties. Bidding wars are gone. Median home prices have remained flat for 3 consecutive months. If the hedge funds that are in "holding" patterns decide to liquidate their portfolio we will see a selling frenzy. Price reductions are abundant. Higher co-ops and incentives are being advertised, etc. All these are signs of a softening market. I agree we are not in a bubble but the market is softening and buyers need to buy smart and calculate for such conditions. This is where a good real estate agent can assist their clients in planning their successful financial future. Hope this is informative the buyers out there.
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I'm actually rushing to edit the book and get it to print by Friday. I think Dad was actually surprised a little by his findings. This book is around 270 pages this time which is larger than usual. We explore a little more on demographics and do chat a little about monitoring the big hedge funds and when they plan on selling. For those that just planned to create the REIT and hold long term, they don't care. But for those that expected a year like 2013 to continue, well, what's their game plan now. I hear rumors of people who invested with some of these funds and they are not coming close to performing as they originally believed (at least from the cash flow perspective). Back to editing!