@Darius A. an interesting article on what is happening. What are your thoughts on it and your plans moving forward?

I believe the RE market is beginning to shift. A lot of macro headwinds for RE investing. Also we seem to be in a consumer credit bubble which could have major implications for RE. 

As far my plans, patience and dry powder. 

Looks like inventory is going to dry up and prices will skyrocket. Nobody wants to sell and give up their 2-3% interest rate.they aren’t even applying. The only people selling will be people with paid off properties buying something else. Hence no increase in supply. 

Try telling someone selling their $400k house to buy a $500k house will double their payment. Or heck, even buying a different $400k house will cost them $12,000+ per year in extra interest, an extra $1,000/mo payment with no improvement, after they pay $24k to sell. No thanks they’ll say.  

I’m seeing a lot more inventory as of late in my home market (Central Coast CA) however it is all on the pricier side ($950k-1.5M). Seems that those are holding higher end properties, likely 2nd (or more) homes, are wanting to unload them knowing that the “peak” has just been passed. High DOM too. Or maybe they are/were high priced remote salaried workers who were called back to the office or laid off as companies start to tighten their belts? Who knows, but I’m finally getting excited about the prospects around here. 

Great properties for someone looking to upgrade, but way too high for most entry level buyers. However I do agree that the inventory for entry level to mid range could get worse. 

I've been watching th KC market and started seeing properties that used to be on MLS for a week before finding a buyer begin to stay listed for weeks. I'm doing small multi family so not paying attention to sfr … then in the last month or so more 4-10 unit places hit the market as I think bigger fish tried to sell before the pullback.

Will be interesting to see the next 6 months as starting to see clients do some layoffs and belt tightening. Sitting on the side while a refi closes and will look for deals. I think the tide has turned somewhat but unsure what 6 months from now looks like. Interested to see how others are thinking…

@Jon Martin

California could be unique. With so many affluent people fleeing the states restrictions and taxes they can probably buy a replacement home with their equity and not need a loan. IF they can earn their money remotely or hopefully retire  I guess I could be convinced that very expensive market where rich people are hated could see a down turn  I just don’t know the market there. Good luck  

Ps. Are you saying inventory is up to a 6 month supply, a balanced market? Realtors in vegas are “bragging” we’re up from 1 month supply to 1.5 months. Like they don’t remember a 3 month supply is still a seller’s market. (A doubling of inventory from the new up 50% rate.) I went to an open house this morning with no signs, behind a locked gated community entrance and there was no available parking. For a $600k home. 

 it’s like the “scare headlines” from a couple months ago about foreclosures being up 100%!! When they forgot to mention they were still down 80% from 2019 when “everything was going gangbusters”. 

@Bill B. I'm not sure if you would call it "6 month inventory" however I am talking a several fold higher number of listings. For a good part of 2021 and into this year, I could count all of the SFRs in San Luis Obispo that were not contingent/pending at any given time, at any price, on 2 hands. Up to $1.5M sometimes 1 hand. Now I can see 30 under $2M and around a dozen that are <$1M. 

Prices are still absurd and out of reach for most, but at least there is inventory now. Looking at some of the higher square footage homes in the area and thinking of ways I could split out an ADU to use as an STR and use the rest of the house as a primary.

Far from exact, and maybe a CA realtor will chime in. But Redfin says 62 homes sold in the last month in SLO. So you might only have 1/2 of a months supply? Sure that’s better than a one weeks supply  But You’d need inventory to triple again to over 100 to still be a solid sellers market. And almost 6x to  200 to be a balanced market. Tiny markets are probably hardest to know. Since small numbers make huge percent changes. 

I’ve looked in to the same thing on Lake Mtka in MN but believe or not the homes can be just as expensive and it’s a frozen wasteland 6 months out of the year. Hardly a great place to relax. 

How meaningful are mortgage rates?  Demand for real estate in pretty much every real estate market is going to have its unique characteristics.   In the SF Bay Area, we have the following:

(1) really, really rich people (including corporate/foreign buyers) - they buy what they want when they want to buy - mortgage rates be damned

(2) really rich people - demand will typically correlate with the M&A/IPO market 

(3) rich people/trust fund types - demand will typically move with stock/public market

(4) the house rich - massive equity build up in existing allows for a cash purchase or near all cash purchase - mortgage rates may matter but not too much 

(5) the high tech/professional income rich -  mortgage rate sensitive but not fatal to demand where two tech/professional incomes in the household coupled, possibly, with a nice loan from the parents 

(6)   normal people - these days, looking at Stockton, Redding, Boise, St. George, Reno, Spokane, Bend, Portland (Seattle . . . duh, too late) 

That's a start to help on the demand side of inflation.  Next, we need to get more materials, fuel, and workers for the supply side.

What is sad is that some of the same people that have the money were crying and saying, "prices are too high,  even though rates should get cheaper because they are at 3.5"................some of those same people are saying, "Hey, rates are higher and prices are higher, why did the FEDS raise the rates? It's their fault that I can't buy now!" 

Already seeing lumber prices drop considerably. https://www.bloomberg.com/news...

That is good as well...also driven by lower demand.  We can't shrink the economy to greatness but extended high inflation is a worse option.  I wish more was being done on the supply side...the Fed can only tame demand.  Unfortunately, we are leaving the supply side to market whims.

 we are not seeing that right now in lumber coming down  I am paying 65k for a lumber pack still that was 30k or less prior to this supply chain mess.. and there is no supply problem with lumber on the WEst coast we have plenty of logs and capacity.. Tariffs hurt some but they have been in place since I was logging back in the mid to late 90s.  I sure hope the lumber comes down though and fast please.  

@Darius A.

Wow maybe it is legit.  Usually when someone even mentions a slowdown they are told that for over a hundred years people morons really have been predicting housing prices going down on the BP forums and overtime they end up with a big pie in their stupid face.  

That being said my specific little market is slowing down a ton.  We have tripled in inventory in the last three months.  I think (as I have for close to 10 years) that the market wants to decrease prices.  Unfortunately the prices of housing has much more to do with public policy than with the market.  But I do believe that right now politically housing prices going down would be the least of the governments/politicians problems maybe even beneficial, but that could change quickly and the government will again boost prices with QE low interest rates etc.  

Not surprising, these forums are filled with lackluster agents and all sorts of RE pumpers who are either ignorant, disingenuous, etc. While I believe RE is a great asset class that everyone should have exposure to in some form, that does not mean it cannot go down, have a correction, etc.

Second home/vacation homes are a luxury and I imagine people starting to sell these and take profits and have less interest to buy at these prices/rates, especially if we officially move into a recession.

Interesting article! There are still great deals out there. Underwriting assumptions are incredibly important. Make sure to build in a healthy level of conservatism

 real estate does and can go down we simply have to look back to 07 through 2011 to see what happened..  Even where Eric lives I remember looking at some houses in his town my bank had took back and I could buy them for about 50% on the dollar from pervious highs took a while but they bounced back.. Central Oregon got hammered in the GFC.  does not mean it will happen this time like it did then as there probably is not the same amount of spec building like there was then. 

Dude last friday CPI skyrocket to 8.6%, much higher than what analyst said that we're near the peak of inflation. Immediately hours after that, the MBS market went no bid !!!!! The 30YFR overnight rate jump from 5.3% to 5.85%.

Some analyst started thinking, the 30 YFR from now on will be 5.5-6.5% for medium term.
If you notice this is still OK considering it's actually the rate in 2009-2010.
However what's the different than 2009, is house PSF has 2-3x appreciation, stock index also has 2x than normalized valuation.

However, if we examine the inflation, most core inflation occured actually because of oil and gas pricing, especially due to demand in Europe and Russian embargo. However, there's actually NO pysical oil shortage in the market, it's just market disallocation because country can no longer buy Russian oil and needs replacement.

Having said that, in my own thinking :
- If oil , coal , gas price back to normal , CPI number is going to lower and the MBS market is stabilizing, we may see 5% or 4% again. This will drive demand again.
- If fed thinks the rate hike is done or they think it started to hurt the supply side, they may think to reduce the hike and start QE again. Question is only there will be hard landing or soft landing, market is not in capitulation mode yet (both equity and real estate).
- In any scenario, real estate is just either going up or flattening in long term. Even in 1970 during high rate of inflations, the growth multiplier of RE is 3.x ; more than the average of 1.5%
- If you compare to actual hyper-inflation in developing country, gozzz, this is nothing.

There is more inventory and the rising rates are pushing out window shoppers that are not serious about buying a home. I am seeing more aggressive buyers that are more qualified. Unfortunately, they are snagging up inventory from the folks that were less serious that dropped out. 

Haha, and that's when developing country folks are purchasing a house with an average rate of 8-12% with 15 years variable-rate mortgage.

Last time I checked, the GDP ratio to house pricing in the Northern America region is 25x.
In the Asia region where 5-8% inflation is 'normal' and nobody care, the GDP ratio to house pricing is 65-80x. India is about 160x. Think about it how lucky we're still even with 5 percent rate.

There are still more rooms for the house to appreciate, not because of the appreciation per se but because the cash today has little value than yesterday.  

Gov. can recklessly print any money but they can't print any more real assets. Not to mention they give us free money to us last year (like 2.75% for 30Y FRM for rental property)  :) lol

So why the house is appreciating so much in the last two years ? it's because Fed is adding 39% new money to the circulation. Why they do that ? to subsidy the public for the covid lockdown, to increase demand by reducing interest rate (in march 2000, the actual inflation is actually negative). This self-created demand causes out-of-normal price appreciation in both real estate and tech companies (tech companie valuation rising 5x because they enjoy the free ride of low-interest rate thru corporate buyback). 

But is the lockdown ( and subsidy) necessary? Ask CDC why they force us this. 

To be very honest, the country that doesn't do too much lockdown/subsidy during covid, they perform better/stable right now while our gov. is extremely over-reactive (either by over-stimulating the demand side or killing the demand just after a year) thus creating crisis over crisis.