Housing Market Crash?

[Alexander Roeschmann]

Possible Housing Market Crash based on Pending Home Sales

Up to this day the US housing market has not been affected by Covid19, but now a lot of potential buyers decide against buying new houses as they a re afraid of a re- or even depression. This leads to a drop of Pending Home Sales of 14.5% (year on year) reaching new lower lows, that are only slightly better than in 2010.

(Graphic 1)

Currently we are at the weakest level since May 2011. (See Graphic 2)

(Graphic 2)

Overall those numbers are alarming and since there are fewer buyers in the market and a lot more sellers the market might plummet into new lower low territory. We are currently headed into a clear Buyers market, pressing prices even more, as AirBnb super hosts, that over-leveraged themselves, are forced to now sell quick.

My prediction is that prices will stagnate and slightly decrease if the economy opens up by May 15th. If this is not the case we are definitely seeing price decreases and if the lock down lasts as long as July we will have another Housing Market Crash, eventually even worse that in '08.

What are your thoughts?

[Twana Rasoul]

@Alexander Roeschmann I personally don’t like looking at national statistics for housing as it is so different from region to region and city to city.

In my area, there are definitely less buyers which decreases demand but there is just as much a decrease in supply from sellers who took property off the market or deciding to hold off right now. That leaves us with similar supply/demand issues.

Also, most people have equity in their home so if they have issues or are in forebearance and can’t make 3-4 Mortgage payments all at once when it is finally due, they can just call a Realtor and sell as opposed to worrying about getting foreclosed on.

[Matt Williams]

I have way too many thoughts to post about the economy, and what may or may not happen as restrictions are removed and industries are opened back up. So, for this string, let me just keep my thoughts to one arena: mortgages.

Even if the economy booms from pent up consumer demand for all kinds of goods and services, and experiences... even if real estate also seems to have a ton of pent up demand with a litany of buyers just ready to purchase real estate.... even if all that happens (totally different discussion as to whether that will even happen), there is trouble on the horizon with respect to mortgages.

We are already seeing a lackluster interest in mortgage backed securities. If that continues, it does not provide a steady stream of renewed capital for banks and lenders to lend back out. Furthermore, we will not know for a while the financial toll that forbearances and deferments are going to take on Servicers. My prediction though is that some major Servicers are going to be hit too hard with short term losses during the next few months. My point is, even if there’s a consumer demand for residential real estate, if there’s not much money ready to be lent out, there is going to be a significant negative impact on the real estate market. This could be compounded if there is a lack of mortgage money available for those that want and/or need to refi when they come out of forbearance/deferment period, which would most likely bring additional inventory on to the market place.

I’m all for being positive, but we need to be aware of what could come too. It is entirely plausible that issues within the mortgage sector could have a major impact on real estate, regardless of how the economy is going.

[Account Closed]

@Alexander Roeschmann Believe it or not, I think apts and retail are going to be hit more than SF. Alot of restaurants employee’s and service people are stuck renting so no rent from waitresses.... retail we already know there. Everything else seems pretty safe.

[Account Closed]

@James De Stefano middle America? As in the midwest or middle class?

What about this? >>> Build-To-Rent? Especially in places like Tex would seem to make sense.

[Mario Broughton]

@Alexander Roeschmann agreed with your assessment.

[Jeff Hubert]

Keep a close eye on the median home value pricing... month over month and let's see how this falls out.  If inflation goes up and the medium home value drops a good amount then the market will be in for some turbulence ...  Don't stress over anything.  Everything will work out.

[Erin Dorsey Robinson]

@Ian Stuart this is very insightful. If what you say is true, it sounds like the opportunity for investors is to

1. Increase cash reserves to take advantage of future opportunities to scoop up over leveraged properties when owners default.

2. Learn the syndication business and understand how to raise money and/or JV to prepare for the opportunity to build a portfolio of single family homes that could flood the market when the economic consequences of COVID force families out.

3. Examine personal business models to avoid being on the wrong side of the wealth changing hands when the music stops. Unfortunately, this might have to include fire sales of assets that are over leveraged to ensure that buyers will risk coming out and buying. It sounds like prices would need to be under market value in some markets to ensure a sale at this point. This should probably be #1.

Anything you would add?

[Ibrahim Hughes]

@Mark Hove

Thanks for your input. Who are your buyers? Here in NJ (coronavirus hotspot) our normal buyers are all sheltered in but many doctor and nurses are now using this as an opportunity to buy.

[Ibrahim Hughes]

@Michael K Gallagher

Yesterday I watched a webinar by an NYU professor on this topic from Schack. He made a good argument for lower demand in office space resulting in conversions of that space to residential space (apartments). Particularly in high density areas. Seeing that affordable housing is still an issue, this makes sense.

[Aigo Pyles]

Real estate is real estate. People who lose their jobs might try to find a place in a different state where the rental or owning a house is cheaper. There might be shift in demand by area. But real estate market will still remain strong as people need shelter specially during this pandemic. 

[Matthew Irish-Jones]

Great data.  It's already having a huge impact on lenders.  Buyers that were qualified two months ago are no longer qualified.  Local portfolio lenders are no longer offering commercial loans in some cases, and construction loans are being denied.

[Seamus Harper]

Too many focused on housing. I think if real estate is to take a hit due to our current situation, it's going to be commercial. Look how many commercial spaces are completely non-functional. If this goes on for many more months, that's going to devastate the commercial market. Even when things do open up, commercial businesses have to implement social-distancing guideline which means less tables in a restaurant, less machines at the gym, etc. In short, significantly less customers for a continued period of time, following a few to several months of no customers. 

[Ian Stuart]

@Erin Dorsey Robinson Yep, I see this as an opportunity for investors to firm up their personal balance sheets, build up a war chest of capital to deploy, and exercise patience in the short term (waiting for market fundamentals to erode in the intermediate term, and for deals to become more attractive) and exercise aggression in the long term (capitalizing on weakness in the market as sellers' expectations are forced to adjust). 

As Warren Buffet says, investing is a no strikes called game. You can sit back and wait for your pitch, you don't have to swing at any deal you don't like. FOMO will work against impatient, fee driven companies who need deal churn to generate fees and make a living. Play stupid games, pay stupid prizes. But individual investors have the luxury of being able to sit back and wait for their pitch. 

In addition - as the wealte gap widens in the coming years - calls for UBI (Universal Basic Income) among the poor will be overwhelming. UBI will be a boon for single family and multifamily owners - because landlords will begin increasing rents to "get their share" of this unearned helicopter money. I anticipate that this will make SFR and multifamily very profitable in years to come, assuming local government don't start raising property taxes to offset the rent inflation.

Only other recommendation I have is to short Tesla stock. 

[Yuechen Zhao]

The housing market is essentially closed for now, so there is not yet a drop. There's also been no significant squeeze on property prices as loans haven't yet defaulted and mortgage payments can be deferred. However, if significant economic pain continues and we see a drop in other equity prices (stocks) then I would definitely expect housing prices to drop -- and fast. Everything is dependent on how long the pandemic is going to shut down the economy, and my bet is that the shutdown will last longer than others think.

[Mike Smith]

I’m closing in 1 month - new build in dfw area. I’m a first time home buyer. Should I be worried? I am not sure if I should proceed or cancel and wait for few months.

[Malgorzata Sadowska]

@Michael B Barnard - we are already seeing folks from North East rent long term (& soon to buy here). 

[Samuel Pentowski]

In San Antonio I've been looking for my first deal and I've seen prices start to moderately drop.  Some properties are dropping by significant amounts (over 20%) and get bought up quick.  Overall there seems to be a modest drop of 5% or less overall.  My friend is also looking for his first property in Kansas City and he says prices have been dropping on SFH by a larger amount and have been rather consistently applied to most properties he is viewing.  I don't know if that trend will continue, but it's what my friend and I have seen thus far.

[Andrew Adam]

Just to add a little of my experience to the discussion:

I know we often talk about the real estate market on a national scale but I feel it is important to drill down into your specific markets as there are many local factors that can change from place to place.

Most of my clients are investors and so a majority of the inventory I look at is multifamily. The inventory seemed to slow down a bit that last month or so. Some of my investor buyers had income changes or portfolio dips that lead them to push pause on the property buying process. And a few others who wanted to get into the game had decided to wait and see how things progressed in April. The last two weeks however I have had several buyers ready to get going so confidence seems to have picked up.

I have also noticed that lenders have tightened up their requirements a bit so if a borrower was borderline they might not be able to qualify anymore. But highly qualified buyers that are taking action are still able to get deals done in my local market now.

[Alex Olson]

Originally posted by @Andrew Adam:

Just to add a little of my experience to the discussion:

I know we often talk about the real estate market on a national scale but I feel it is important to drill down into your specific markets as there are many local factors that can change from place to place.

Most of my clients are investors and so a majority of the inventory I look at is multifamily. The inventory seemed to slow down a bit that last month or so. Some of my investor buyers had income changes or portfolio dips that lead them to push pause on the property buying process. And a few others who wanted to get into the game had decided to wait and see how things progressed in April. The last two weeks however I have had several buyers ready to get going so confidence seems to have picked up.

I have also noticed that lenders have tightened up their requirements a bit so if a borrower was borderline they might not be able to qualify anymore. But highly qualified buyers that are taking action are still able to get deals done in my local market now.

 Agree. If you are a strong buyer you should be looking for great deals right now. Go after it. If not, wait. But don't wait too long as you may not get it. Keep in mind this recession is caused by gov shut down not any specific crash such as housing or stock market or any type of surprise. 

[Wayne Hammond]

Dam good point!

[Mark William Murphy]

I believe in getting out while the gettin’s good. My properties have increased 50% in the last few years. That’s enough. Don’t be greedy. Be measured. I’m cashing out, paying off my house and banking the cash for the next opportunity; maybe an auctioned property. I’ve done before. 
i am not smarter than the market. Neither are you. There’s nothing wrong with taking a profit to become self reliant and financially free. It’s why we BUY real estate

[Ian Walsh]

Everything is speculation.

[James Hamling]

Just wrapped up team meeting with realty group, reviewing numbers for the Twin Cities MN market and I have to say as far as "housing market collapse"'s go, this one is doing a horrible job at it, although I assume the doom preachers will now move into the chapter 2 book of "apocalyptic talk 101" which is "but yeah, it's just around the corner.........". 

In TC market median sales price just broke the 300K glass ceiling for the first time ever, now perched at 305k. I always thought collapse meant median prices decline but maybe I am just wrong. 

Approved mortgage applications is up another 9%. See, now I'd say that's people inspired to action by fantastically low cost of borrowed funds, but there is a coming collapse and consumer confidence is supposed to be down, so, I don't know, maybe they're just bored, yeah let's say bored. 

Showings are up about 200% over last 60 days. Let's see how do we spin this to sell the doom.... ah-ha, we will say it's all because evil landlords are turning off utilities and they need somewhere to go, Waite, no, that would show they have money and we keep saying there using every dime for food.... uhm, ah, it's to use the bathroom, yeah, that's it, using the bathroom, that's the ticket. 

If you can't tell I am just a bit exhausted from the sky-is-falling pandering crowd, especially as there is such a ridiculous amount of fact and evidence to the contrary. Adjustment, yup, market shifts, without doubt, change gallore, but housing market collapse..... seriously I wonder what it's like to hang out with these people when there is a rain shower, if they run for the basement and cuddle in the corner shaking like my chiwauwae, mummering of tornadoes, floods, hurricanes, lightning.... Take a breath, relax a bit, maybe get a therapist or some anxiety med's or something because man the jump to panic is over the top. 

[James De Stefano]

Originally posted by @Mark William Murphy:

I believe in getting out while the gettin’s good. My properties have increased 50% in the last few years. That’s enough. Don’t be greedy. Be measured. I’m cashing out, paying off my house and banking the cash for the next opportunity; maybe an auctioned property. I’ve done before. 
i am not smarter than the market. Neither are you. There’s nothing wrong with taking a profit to become self reliant and financially free. It’s why we BUY real estate

If I had several properties in Cali,  I agree with you, I'd Sell!    I think Cali is in for more economic pain than other states, many of them in the South ( Az, Tx, Fl, etc. ) 

We're seeing lots of buying activity in Houston, but much of it under the 400k  range.  School districts will continue to push high demand for suburban homes I would imagine, even if school districts aren't back to 100% normal even for the entire school yr. 2020-21.  Things will even out, and schools are always a top priority 

[Denise Nayda]

I understand what you're saying, but the "doom and gloom" is well founded: people have lost their jobs, I think it's at 10% that was last counted, it IS NOT normal for jobs to be lost in the MILLIONS per WEEK. 30% of homebuyers asked for forbearance in April, but that is only done for Fannie/Freddie and HUD homes. The private mortgage companies are doing business as usual... Also a lot of big chain companies are going bankrupt. The stock market is always ahead of the real estate market. What comes up, must go down.

The country was not doing so hot to begin with, you can see that because every time the Fed tried to raise rates the country was having none of that and the stock market fell, as well as buyers getting mortgages

In my opinion the system is being propped up because it is election year. Once people vote, their will no longer motivation for the powers that be to keep up the charades. Unless of course the fed is in complete control and want to be the buyer and seller of everything, we get negative rates and then we'll have stagnation like Japan.

But yeah, everyone thought that the coronavirus was the needle that bursted this bubble, it did, but they are taping it up with near 0% interest rates and giving people "free" money and forbearance on loans. Now instead of a fast deflation, we are seeing a slow one.