Will the Real Estate Market Collapse in 2015?

[Wendell De Guzman]

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?

[Mark Freeman]

@Wendell De Guzman 

1. Yes.

2. As  interest rates come up. (Mostly dictated by the Fed. Res.) The 2nd half of 2015.

3. Be careful! Short term plays should still be good. Don't get into deals that take a year or more to complete! Buy and hold only at good discounts to the current market unless there is at least a 10 year commitment.

[Matt R.]

Moodys is predicting a banner year for 2015. 2014 was good and 2015 could be better.

Two supporting reasons they gave:

1. We are near full employment. When that happens wages and income rise.

2. Cheap energy. More cashola to spend.

Coupled together equals full steam ahead. The x factor is foreign events and how the markets react to interest rates rising. UCLA also is forecasting slow and steady for RE. 

My conclusion is perhaps bubbling but no popping yet.

[Cory Adams]

If the last crash taught me anything it will be to keep reserves and also cash on hand for opportunities that arise after the next crash.  

[Engelo Rumora]

Originally posted by @Wendell De Guzman:

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 hope it does lol

More buying opportunities :)

Thanks

[Wendell De Guzman]

Originally posted by @Engelo Rumora:

I hope it does lol

More buying opportunities :)

Thanks

My thoughts exactly. I will buy properties in Southern CA when they are selling for 25 cents on the dollar (vs. today's prices). 

[Chris Simmons]

Depends on your market.  Here is Tulsa....I am more than comfortable.  The upside to low appreciation is minimal downside risk for events like this.  

The parts of Tulsa that were hit the hardest with the last bubble are still below their price points 5 years and if they get any cheaper, I will be happy to buy them based on what they rent for.  

For the other areas, B properties and up....little value was lost.  The main impact was going from 1.5% appreciation per year to 0% for a few years.  

[Engelo Rumora]

Originally posted by @Wendell De Guzman:

Originally posted by @Engelo Rumora:

I hope it does lol

More buying opportunities :)

Thanks

My thoughts exactly. I will buy properties in Southern CA when they are selling for 25 cents on the dollar (vs. today's prices). 

Yep,

Always sitting on enough cash to move and shake if it ever tumbles again.

I would love for the Australian market to tank also.

I moved $$$ to the US when the dollars where equal. Check the Aussie $ now.

Would make almost 20% just on the conversion back.

Not to mention that I know the NSW market like my back pocket :)

Thanks

[Mark Mosch]

Also - a big question is if we are talking about SFR's or Multi-family. Anyone seeing a divergence between the 'frothiness' of these two markets?

[Joseph Weisenbloom]

@Mark Mosch I could see there being a major bubble bursting in multifamily. I cant speak for all parts of the country but it seems like inventories of multifamily properties are drastically low. Not sure if its the hedge funds to blame or just stupid investors. Eventually people are going to realize that buying these properties above market value is just not a good investment.

[Wendell De Guzman]

Originally posted by @Joseph Weisenbloom:

@Mark Mosch I could see there being a major bubble bursting in multifamily. I cant speak for all parts of the country but it seems like inventories of multifamily properties are drastically low. Not sure if its the hedge funds to blame or just stupid investors. Eventually people are going to realize that buying these properties above market value is just not a good investment.

 You may be right - brokers are pitching me apartments with 5% and 6% cap in Texas. They told me it's a HOT market down there and I can't buy an 8% cap apartment anymore. So I will wait on the sidelines right now and act when those who bought at 5% cap end up selling at 8% cap.

[Ben Leybovich]

I don't need a video to tell me there's a bubble.  When I start seeing lemmings on biggerpockets and everywhere, buying stuff turn-key with a supposed discount of 20%, 15%, 10%, and in some cases 5% off market (as if), I know it's on its way...

Now - I hope it happens sooner than later.  2015 would work well for me, but I think it's too soon...:)

[Steve Olafson]

I don't think that this cycle would necessarily be defined as a bubble.  Perhaps a bit overcooked in the multi-family arena but nothing like the last one.

I see a small price correction with interest rates.  Rents are likely to continue going up for the next few years.  The problem that I see is that these rent increases seem to be priced in already.

What I am hoping for is the multi family market to lose favor with the masses of investors.  The prices may drop a bit but the main factor is the distressed deals.  Right now people are paying significant money for properties that need work and turnaround.  Once the market levels out, everything should go back to balance.

[Martin Yung]

Don't think there is bubble too, don't see irrational exuberance yet.

[Jay Hinrichs]

@Wendell De Guzman 

  In my mind the building blocks to the last great melt down are not in place. So I for one do not see a big bust coming... Too many properties were sold for CASH the last 6 years.. In some areas over 50% of the properties were bought with cash...

As opposed to pre 07 or 08 were so much property was 100% or MORE leveraged.

Even if you have price corrections those that own properties free and clear will just ride it out.

Now if you had rent compression that could be a problem but I don't think other than a few markets that's on anyone's radar.

If for some reason subsidized housing  like section 8 came back to market rent rates that would create a ripple .. and or if they drastically cut back on it... that would effect the mid west cash flow markets pretty dramatically.

[Guy Gimenez]

Been through two corrections thus far in my career and I'm seeing a lot of similarities between 2008 and now.  Fundamentals are being tossed aside by many newer investors who haven't seen a correction before and they'll eventually pay a price. The last two corrections happened virtually overnight. In less than 90 days, the market was turned on its head in the last event. 

Just look at what is happening in south Texas with oil.  No one saw it coming and with OPEC trying to ensure the death of U.S. fracking, the capping of wells will persist for a while. Those who invested in "man camps" may not see the return they were expecting with all the layoffs taking place right now.  

I was laughed at (often by agents with my brokerage) who thought I was nuts to cash out in 2007. Most of them now have jobs and two went bankrupt. I don't know if 2015 will be the year, but my gut tells me it very well could be as things move faster in these corrections than ever before. I know there will be plenty of opportunities available when it happens. 

[Kevin Page]

@Jay Hinrichs is correct. Our market is 60% cash sales and we are in a balanced market. Interest rates are at historic lows, some politicians are saying we need to increase home ownership in America. FHA and others are slowly reducing down payment and income requirements. Even if rates go to 6%-7% it is still historically low. Rents have risen and many can buy for cheaper than or equal to rent. The cycles last about 10 years and the crash was in 2005-2006. I don't see a crash at all. We are coming out of the old cycle and going into a new one. At least this is what I see in my area. Other parts of the country may be different.

[Jay Hinrichs]

@Kevin Page 

  very much regionalized in my mind... in Oregon we did not crash until early 08... I started a condo project later part of 07  OUch...

but I did sell my rentals last year... and am just concentrating on quick hitters these days.

[J Scott]

My opinions:

- In many parts of the country, things are a bit inflated, though I wouldn't use the term "bubble" for real estate

- I wouldn't be surprised to a "deflation" over the next couple years, but I wouldn't use the term "bubble popping."  I don't believe it will be that quick/severe.

- Interest rates will likely drive the deflation of the market, but with 2015 being an election year, I think it's highly unlikely that there will be any significant Fed changes before 2016.  In fact, I think it's more likely that it will be at least 2017 before we see interest rates creep up more than where they were earlier this year.

Just my $.02...and I'd say my chances of being right are about the same as everyone else posting in this thread...  :)

[Jay Hinrichs]

@J Scott 

  I sure hope your right... that will give me time to build out my inventory of lots and then live the life I deserve and spend more time with my family ( although they may not want to spend time with me :))

[Steve Olafson]

LOL!!!

[Steve Olafson]

Originally posted by @Guy Gimenez:

Been through two corrections thus far in my career and I'm seeing a lot of similarities between 2008 and now.  Fundamentals are being tossed aside by many newer investors who haven't seen a correction before and they'll eventually pay a price. The last two corrections happened virtually overnight. In less than 90 days, the market was turned on its head in the last event. 

I agree wit the first part.  The difference is that the economy seems to still be in a fairly early stage of recovery.  But the fact that people are ignoring fundamentals is what is driving my decisions to sell.

[Kevin Page]

Also consider the "pump and dump". Theory is Wall Street will soak up the inventory of cheap houses, pump up the price and then dump the inventory. Black Rock and others  are buying properties all over the country and renting them out. Never before have institutions got into the single family rental market. Just another thought. I am optimistic but cautious. 

[Joseph Weisenbloom]

Yes trying to predict the economy is like trying to predict the whether. Seeing a day or two out is somewhat predictable but trying to figure out weeks, months in advance is impossible. Any system with that many variables could be upended by the flap of a butterflies wings.

All that being said long term trends like global warming (please don't start a debate) can be seen clearly by measuring consistent changes. Certainly we are seeing a consistent lack of inventory and overpaying in some markets and in some niches.

[Chris Clothier]

My personal opinion on this is that it is all in your perspective.  The national housing market effects all of us in minor ways daily, but I am not personally affected by the rise and fall of home prices in California, New York, Chicago or Fargo, ND.  My business might be impacted, but my investments are not.

There are housing markets in the U.S. that were never impacted by the last housing bubble.  The price of homes in some markets have continued to increase since 2004 - they never corrected and still have not.  Maybe it is time for them to see a bubble....who knows?

I don't pay attention when people talk in big, broad strokes about the housing market or the economy or most other things.  Each market is an economy unto itself and there are dangers around every corner, every day for real estate investors.  Trying to predict when the next natural disaster is going to take place and how it will effect me is a waste of the precious little time that I have each day!  

I do agree with some of the commentators on here that it is always smart to  have cash on hand, however some sound like they are preparing for a crash and holding onto their money.  Doesn't it just make sense to always have short-term capital ready to deploy on the best deals?  Otherwise, you could be holding your money close to your vest waiting for the market to crash and dollars to rain into your hands while you ignore the fifty-cent pieces that have been falling and will continue to fall for years to come....

I know my .02 is worth less than @J Scott 's so it makes his look like a bargain!

[Cole Walker]

Talk is cheap..... round here it seems to cost .02 :)

It feels like we are in a bubble.... but as someone else mentioned, there are a few pieces missing.... I think those pieces are gonna fall into place in 2015.

So a "pop"?.... I vote 2016.