Housing Bubble? Hard Finding Deals? What&#x27;s Your Market Like?

David MacClintock

Investor · Oneonta, NY · Member since 2015 · 57 posts · 27 votes

9y

My market is stable but hot. Low days on market but limited appreciation over last year. Its only March though. May 1st will give me a stronger indicator. I recently attended a few open houses and they were wall to wall people. None of them have had a status change since however so who knows what that means. My market is primarily supported by state government jobs so it didn't experience a huge crash before but also it wont experience 10%year over year appreciation. Those jobs tend to have pay tied to inflation targets and while there is a ton of promising tech growth, development builds have been focused on eating up the new comers.

Marcus Auerbach

Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes

9y

The greater Milwaukee area is on a 30 month run with exceptionally tight inventory and multiple offers pushing prices up year over year. The Milwaukee market is quite diverse and while we have areas that have seen double digit appreciation in 2016 YoY there are others - especially low price point areas - that have flat lined. December through March where rough as far as inventory - we were down to 2.4 months of supply (6 would be normal) and anything left for sale has been picked through many times. I see now a lot of fresh inventory hit the market, but anything attractive sells within days. Some of my clients don't want to believe it - they ask me to schedule a showing for next weekend and are surprised when it's gone. We have not seen much construction in the last almost 10 years. Many builders went broke 2009/2012 and a lot of trades people have other jobs now - my old painter how used to have 6 crews is now a nurse. Development has shifted dramatically. Nobody is building starter homes anymore. Anything new is 400k and over. The new starter homes are downtown condos or just rentals - in either case multi family developments. Nobody is building 200k homes anymore, profits are just too skinny and land too expensive. We have an almost unprecidented development boom in downtown Milwaukee of almsot $300M in current projects, reshaping the skyline clearly visible from the lake. The inner city areas remain an unresolved issue and many people are moving either downtown or outside of Milwaukee county to escape the high property taxes. Competition amongst investor is fierce and while HGTV flip shows drive a steady flow of new flip "investors" into the market place most give up either before or right after their first deal. The buy and hold market still offers great opportunities, in particular in the medium price ranges and areas with lower property taxes and higher rents a solid mix between cahs flow and potential for appreciation is achievable. While prices have gone up and DOM have come down the market still offers double digit ROIs for investors with capital. For those who don't and have relied on desperate sellers offering 20+% instant equity at closing the pickings have gotten slim. Deals can still be found on MLS every morning, but they are usually gone before the end of the day. If we are going to see inflation (expected as a result of increased money supply) and finally some wage growth across the board we should see a number of good years to catch up from the lost decade 2006-2016 in Milwaukee. Rising mortgage rates and unforseeable knee jerk moves from Washington remain risk factors - we don't know what the next market shift is going to look like.

5 Reply

OP

Residential Real Estate Broker · Dousman, WI · Member since 2017 · 22 posts · 22 votes

9y

Very interesting stuff guys thanks for commenting. We can already see a difference in our markets. If there is anyone out there in the California Florida Arizona Seattle markets I'd love to hear from you.

Jeff Schneider

Residential Real Estate Agent · Phoenix, AZ · Member since 2016 · 154 posts · 117 votes

9y

@Ryan Kraft just curious what you are seeing in your market that is similar to 05-06. Is it just supply shortage, price increases or sketchy things normal buyers wouldn't do when buying a home like buying their primary sight unseen?

There are a quite a few people worried about pricing in Phoenix but in my opinion it's a supply and demand thing. I don't see any shenanigans going on now that were going on back in 05-07. In March of 2016 our days of inventory for single family homes was 93, this March it is 77 so we have an 18% drop in inventory with a increase in demand. In 2016 we saw a lot of folks come to the table that reached the point their past foreclosures so they could purchase again, 2017 is going to be another one of those years so I see demand increasing. Demand can increase/decrease at a much faster rate than pricing/inventory and demand can be influenced faster from outside sources like the stock market, fear etc. The main risk I see for Phoenix is influence from an outside source killing demand and if it happens, I don't see decreases like we did in 08 when everyone quit paying their mortgage. There are many areas of Phoenix that are still 20% or so below the high prices of the free money, no qualify needed days so I wouldn't say we're at a ceiling.

Rental Property Investor · Phoenix, AZ · Member since 2013 · 919 posts · 911 votes

9y

@Jeff Schneider I think there is more to it than supply/demand. As a landlord, I WANT my tenants to be able to afford my places. Mine are in Chandler, Gilbert, East Mesa, where all the schools are fairly good.

Many of the purchases are with foreign money at 100% cash. That does not bode well for the locals.

The problem I see is that the home prices have recovered, but wages have not. So now I am seeing the same type of wages/applications today as I was seeing 5-6 years ago. The 'problem' is that my rents are $1300 a month instead of $1000. The renters are the ones taking the hit. Prices are too high for them to save the money to buy. Loans require sooooooo many documents now that it is punishing.

I am not sure how unaffordability ends, but I know it won't end well.

AG

5 Reply

Jeff Schneider

Residential Real Estate Agent · Phoenix, AZ · Member since 2016 · 154 posts · 117 votes

9y

I was mainly talking about the single family home market. The deals for investors are harder to find but there are still some out there. As a owner occupant, although prices are higher, things still remain affordable in most areas and interest rates remain low. The buyers I'm working with now have savings and they are putting in healthy down payments when buying.

The rental market is definitely high, things are renting fast though. There will be a ceiling somewhere, we may be there now. I don't see rents pulling back rapidly if we do have some sort of pull back. Supply can change the rental market and there is a fair amount of nicer apartments being built in Phoenix so overbuilding could be a factor in the multi-family rents area. I always try to tell people to buy right because if you do, it will still cash flow even if we do have a little pull back in rents.

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

9y

well its simple math really.

in many markets there simply are not enough homes to keep up with the population and the values of existing homes makes it near impossible to build new with what every thing cost to build new homes in many markets.. so you take out new construction .. like in many markets hardly any has been built in 10 years.. recycle the old homes.. and population goes up .. you have the markets you have now.

you go to parts of the mid west that have seen steady population decline over the last 20 years and markets are flat as a pancake on values and no new construction but still plenty of homes to go around since people are fleeing not coming..

for instance in Portlandia 80 people each and every day move here from somewhere.

so that's my take on it.

also as investor don't we want are properties to go up? I know I do.

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Marcus Auerbach

Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes

9y

Here are three slides from Gary Keller's 2017 vision speech. How much the market has chnaged in short 4 years!

8 Reply

OP

Residential Real Estate Broker · Dousman, WI · Member since 2017 · 22 posts · 22 votes

9y

So far it seems like there is not an across-the-board consensus that markets are overheated like I feel some pockets in my area are. I know a stock market decrease does not necessarily equate to a housing correction but have any of you looked at the Dow or S&P stock market graphs of the last 40 years? If not please do. If history repeats itself things are going to get rough? Conversely, we have strong underlying housing market data such as low foreclosures low unemployment, solid demand and so forth but we were in that position before the big crash. Obviously we don't have the subprime issue which was the leading cause. Your thoughts????

Rental Property Investor · Phoenix, AZ · Member since 2013 · 919 posts · 911 votes

9y

@Jeff Schneider ALL my properties are SFR. From what I have seen it appears the ONLY thing being built are monster apartment complexes. Near me there are 2 huge complexes being built by the I-10/202 interchange. Each one must be 300+ units. New SFR builds in Maricopa are 200K+ now.

@Jay Hinrichs I get the 'math' thing, but it is NOT good when your rent base, has a whole, spends 40% of their income for housing vs 25-30% a few years ago. I like my properties going up, I just don't care for 'hockey stick' graphs. ;-)

The thing I am seeing is no 'starter' (3/2, 1 story) homes are being built. I guess the new paradigm is to go from an apartment to a mansion?

5 Reply

Rental Property Investor · Phoenix, AZ · Member since 2013 · 919 posts · 911 votes

9y

@Ryan Kraft I think there will be a pullback in sales price before anything else happens. Prices, I believe, are unaffordable for the 'average' (however you want to define it). Buyers will just go away. More sellers than buyers = price drop.

As far as rents, not so sure. I don't see them continuing to rise, but more of a leveling off. I've seen applications where the renter WANTS to spend 50% of their take home on renting one of my places. Recipe for disaster on both parties. Wages have not risen anywhere near as fast as rents. As a landlord I want to charge all I can get (safely) and then some. As a human being I don't want people to struggle THAT hard to make it.

6 Reply

Erik Larson

Investor · Chandler, AZ · Member since 2017 · 33 posts · 10 votes

9y

I second this monster appt complexes. All around Chandler even what I thought was going to be a nicer housing new build is actually a big condo/appt build. All new construction I'm seeing in Chandler appears to be complexes. In Gilbert they're building $400k+ houses with 150 sq ft back yards and you can slap the neighbors house from your 2nd story bathroom window.

I drive around and wonder where the starter homes are? In my area I think we're slightly over valued with 1100sq ft 3bd's hitting the $220+ mark and they were built in the early 70's.

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

9y

@Alan Grobmeier government regulations make building starter homes in many markets not feasible.

Take our market in PDX I am building 23 lots right now.. we pave on Monday.

44k per lot to develop them does not include soft cost of 5k a lot for eng. and permits. so say 50k and they are shovel ready... and this does not include the cost of the dirt ....

now building permits are 30k per house.. so 80k per house plus cost of capital makes it about 90k per lot .. then add in the cost of the lot in raw stage 25k each.. and your at 115k before you go vertical...

how can you build a starter home in our market ???? or any home that would sell for 250k or less and make a profit..

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Jeff Schneider

Residential Real Estate Agent · Phoenix, AZ · Member since 2016 · 154 posts · 117 votes

9y

But more government in our lives makes it easier, LOL. I was just having a conversation with an out of state contact that mirrors what Jay just mentioned. Loopholes, red tape and costs of construction has made entry level housing extremely difficult to build and make any kind of profit.

Rental Property Investor · Phoenix, AZ · Member since 2013 · 919 posts · 911 votes

9y

@Jay Hinrichs It would appear to me that you can't. I would say get govt out of everyone's business. I saw a post earlier today that in MN they are making landlords take section 8 tenants. Since stuff like that seems to be the trend, I guess govt going away is not likely.

OP

Residential Real Estate Broker · Dousman, WI · Member since 2017 · 22 posts · 22 votes

9y

so as this thread moves from talking about market trends it seems like the conversation is steering towards identifying a segment of the market that needs to be addressed all over the country possibly which is affordable housing. In my market Waukesha County Wisconsin affordable new construction does not exist. Across-the-board there's a huge market and lack of supply issue. I'd like to think if developers could build it the Millennials will come. So Developers,,, asside from government,,,, what's the solution? I've been talking to Millennials and their interest seems to be small house, nice lot, no maintenance.

OP

Residential Real Estate Broker · Dousman, WI · Member since 2017 · 22 posts · 22 votes

9y

There's a new development here with a fairly new concept to my area . The developer has incorporated apartment living with dining and a shoping mall basically under one roof. It's basically mixed-use property on steroids. I think it's absolutely genius maybe this could be applied towards condos or housing.

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

9y

@Ryan Kraft could you identify this development or send me a link.. I would like to check it out.

I have a 4 acre property in Rohnert Park CA I have owned for going on 25 years.. it just got brought into the city as a mixed use resi project and I am trying to figure out what to do with it..

CA is super expensive as you know.. but maybe something like this could work.

problem is not with developers and affordable housing.. it rest squarely on regulators and city officials and environmentalist.

building materials have risen a little but not much.. labor is up... whats up is development standards that the cities want and all the fee's that cities want that is not directly related to housing.. Like here in Portlandia we have to pay almost 5k a house for a park fee.. In a state that is half owned by Federal 'Government State government... why are we paying for parks.. :) and especially one's that are used by so few people.. its that kind of thing...

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William Wiebolt

Flipper/Rehabber · Scottsdale, AZ · Member since 2015 · 12 posts · 20 votes

9y

We own a couple hundred SFRs in AZ and FL that we acquired in 2012-2013, and are currently flipping about 25 at a time in AZ. We are increasing our exposure in AZ flips, looking for higher end properties with large spreads ($100k+) and mixing in simple flips under $250k. AZ is very hot, FL has not popped yet. FL is seeing lots of pressure from builders, so average sellers are having difficulty offering a nice enogh home for people to want to pay for. Builders are offering up to 5% incentives to both the agent and the buyer, so they really have taken a foothold. I see opportunity there also, more on a buy & hold for 2 years then sell. I think AZ has 1.5 years left before a pullback but we will be out before that. We're slowly liquidating our rental portfolio, and flipping properties in the mean time.

In both the AZ and FL markets (and other southern markets with heavy investor presence), it is absolutely crucial to watch what Blackstone, Colony, and American Homes 4 Rent are doing. They own 10s of 1000s of homes (maybe 100ks?) in those markets that they are currently holding as rentals. These homes are the same kind we have as rentals, the typical starter home which is selling for $180-220k in AZ right now. There is excessive demand in that range right now and limited supply which is in part due to the hedge funds and smaller companies like us who are holding on to them and using them as rentals.

In terms of affordability, I think AZ and FL can both sustain an overnight increase to 6% on mortgages, and a 15% increase in house prices. Median income in those areas is increasing, and there have been some interesting investments made by companies like Intel (7 billion in Chandler I believe). In addition, more people are retiring every day, which is also a good thing for the southern markets as baby boomers from the north seek a warm place to retire. Dipping my toe into the 55+ markets as I see deals come through, I think there is a real demand for anything done right. We don't skimp on our flips, and we've had good success in terms of days on market and contract ratio.

My two cents. I have followed BP for awhile, but haven't posted. I'm from Fargo, ND and in the event anyone is considering this market for any reason, I would strongly try to talk you out of it. Vacancy rates up, prices way too high, etc.

Thanks all -

William Wiebolt

12 Reply

OP

Residential Real Estate Broker · Dousman, WI · Member since 2017 · 22 posts · 22 votes

9y

@Jay Hinrichs thecornersofbrookfield.com they are just about done building it.

very interesting to here about the regulations and fees developers deal with. I suspect developers have similar problems here in Wisconsin but maybe not to the same degree.

@William Wiebolt thanks for your input. I am always curious about those markets. I often get snow bird clients moving south. I recently read that Miami condo sales are slowing down. Do you think that is any indication,,,,, do you have any thoughts on that?.

3 Reply

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

9y

@Ryan Kraft is this off of Bluemound?

I spent my summers in Wauwatosa ,, cousins lived in Brookfield now they live at Pewaukee.

I am there most summers for the fair.. I need to get my quotient of fried foods

thank you will look It up.

I suspect it may be similar to some developments I have seen in KC

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

9y

Ryan this is somewhat similar to Santa Row in San Jose that was developed 25 years ago.

its kind of the open mall concept that is in CA and warmer areas.. we have them in Oregon.. Bridgeport.. but no resi component to that one.

thank you

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