Housing Bubble? Hard Finding Deals? What's Your Market Like?

[Ryan Kraft]

Hello All, 

This is my first discussion. I would like to reach out to investors/Realtors all over to see what they are experiencing in your market and your thoughts on where the market is heading. I have a fascination with how fast real estate markets change and would like to use the Bigger Pockets community as a gauge to see if we can predict or at least be on top of market trends. I will start with my current thoughts. As a Realtor, my market in Southeast Wisconsin seems to be, to no surprise, strong. We have several locations that I would consider to be "listing deserts" which draws in multiple offers and seemingly fast price appreciation. I don't fully understand why we do not have more lower priced listings available or coming up on the market. I would think with strong markets people would be considering that upgrade house which would free up their smaller more affordable home. From an investor point of view I am finding it very hard to get deals. My go to auctions are being bid up or are being sold with squatters in them. I am doing some direct marketing but not having a lot of success and of course the MLS is too competitive to work. I have increased my 70% rule to more like 80% but still find it difficult to get deals. To you more experienced investors, is this the kind of market where you step on the gas and spend more on marketing or do you sit back and wait for the market to slow down? I am seeing some signs in the market reminiscent of the 2005 06 days.  We have a legitimate subprime auto loan bubble, wall street has securitized cell phone bills and rent payments, the stock market seems to have no place to go but down, incomes are not keeping up with home prices, Canada and Australia are facing housing downturns, foreign investors are bidding up high end homes, private commercial lenders seem to be spending big bucks on finding new customers and HGTV flip shows and investors are all over the place.... My prediction.... 2017 a great year but current market conditions are not sustainable for much longer then that unless rates go up and more inventory comes on the market,,,,, and at this point I do not feel we are on the edge of another great recession rather a correction. So there is my opinion, not saying I am right, just my thoughts. What are yours?

[William Wiebolt]

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