All Forum Posts by: Alex Hochberger

So the tenant is paying gas. The rent is being paid. The rent is somewhat delayed and getting corrected?

Sounds like you have a minor issue. You might want to not renew lease. You might want to work things out. But you have a non-disaster now, call it a W and move on.

inflation has clearly stopped as the MoM numbers are showing. A few things have happened:

1 US Government stopped excessive stimulus 2 student loan debt cancelation appears dead

3 interest rates rose

the COVID stimulus kicked inflation up to 4%, but the ARP plan set off global waves up to 9% because the massive USD inflation triggered oil price run up (oil is priced in USD), which funded a land war in Europe. Student loan forgiveness threatens to add another half trillion dollars or more into an overheating economy.

I’m not sure how much interest rates changed vs stopping fiscal insanity, but the fed is managing to get interest rates to a healthier nominal point

Inflation plus interest rates have sucked most of American’s COVID savings into bank profits, which might be immoral, but ends the inflationary spiral.

The main problem right now is Powell wants wage growth to slow so he’s going to hack rates more. Given the fed’s dual mandate of full employment and stable prices, there is no justification for his war on working people, but he has a Presidential appointment and I do not.

Either way this seems like a great time for LTR landlords. We are in a correction but a small nominal decrease In an inflationary environment will not reward people sitting on devalued cash. Most markets will be flat in nominal terms, up or down a few points.

California has a depopulation issue in several markets, that will drive down demand.

 

Quote from @James Hamling:

Go out too 2005. When we take a full vision, we see this "lost decade". And when one connects the lines between today, and 2006, all of a sudden everything looks like a NORMAL, incremental, standard rate of appreciation and incline. 

There was a ditch dug in the road, we just infilled that ditch. No, Real Estate is NOT going back into a ditch, there is nothing to dig a new ditch, because that's what it would be, a NEW ditch. Recession means a PAUSE way more then it means digging a ditch. DEPRESSION is ditch digging. 

So an argument of things leaping back 24mnths in pricing is an argument for "depression". 

 Right, markets go up by averages over time, but the actual market looks like a step function: S&P 500 over 90 years: 3 Steep inclines (a 4th that is really part of the flat market) around 3 flat markets. This includes from 1954 - 1983 being flat... Now this is the inflation adjusted line:

Same chart in nominal terms:

Still has three inclines and three flat markets, but it's harder to tell because inflation causes nominal growth. But looks much easier to follow.

Generally, prices go up with inflation in all markets, that's what inflation is. The idea that inflation is going to cause a collapse in nominal housing prices is a bit silly.

Could 2023 have some major swings that break a bunch of investors? Absolutely. But the 2008 collapse is not a "normal" pull back, it's the only collapse outside of the Great Depression. It's also not clear how real it was. A lot of that crash was giving back 2-3 years of gains - gains that were powered by a lot of non-arms length transactions and liar loans. Markets that weren't inflated by fraud didn't collapse. Markets that were inflated by fraud did collapse.7

It was super painful in Miami / South Florida during the collapse, but financial fraud is in our blood.

"This time is different" - this time prices were driven by buyers. Markets may be nominally flat for a few years while inflation catches up with them, but there is unlikely to be a rash of foreclosures that could cause a crash.

BTW: if inflation is 7.5% using the "new CPI" (and 12%-15% in the "old CPI") and prices go up 3%, that's a decrease in real prices. But if you wait out the market, you still lost because your mortgage is in nominal prices.

Cut the gas account and they will likely switch it to there name. But they might not, and you'll be stuck with the damage.

Forget the moral dilemma, it's probably a bad business practice to cut it. Frozen pipes are expensive.

You need to evict, and try to minimize the damage.

Good luck.

Quote from @John Carbone:

Quote from @Michael Wooldridge:

Quote from @John Carbone:

Quote from @Nicholas L.:

@John Carbone

I still don't think I understand the big deal around phantom equity.  I probably had some myself.  I bought a new primary in 2019.  Refinanced into a low, fixed rate.  So if my primary jumped up from what I paid for it in 2019 to something silly in 2021 or 2022 and is now back down... so what?  I didn't tap it, don't need it, and am not a seller.

Is this just a sign of the reduction in prices?  Or a cause for concern?  Or both?  Won't the biggest 'losses' be in primary residences that are above or significantly above the national median?  Will it hurt investors?  

It's just pointing out the facts. Over the summer it was assumed everyone had the equity they thought they had, but once rates increased sharply, it instantly vanished. We are now slowly seeing that realized in the market with declining home values. HELOC's have been a big contributor to inflation, so having values drop and rates rise virtually nobody will be doing them anymore which is good for the fed. The biggest concern is for peak buyers who panic from the drops or are forced to sell. There is a lot of psychology of someone paying 500K for a house last summer and being told by banks it's worth 350-400k for an average primary owner. Logically they are better off staying put, but to those people You can see some irrational decisions up to and including handing back the keys. I just read recently up to 70 percent of homebuyers regretted their purchase during Covid already…. We won't see the end of this until likely next year, but I do know values won't be higher a year from now.

Agree with the psychological aspect. But where are you seeing properties that fit this: 

"There is a lot of psychology of someone paying 500K for a house last summer and being told by banks it’s worth 350-400k for an average primary owner."

That's 20-25% on essentially median values. I don't think there is a market in the country that has hit that, not even close. The big hits have been on the higher end as called out and certainly not to that degree. 

Or is this just back to what you are predicting because the above example hasn't' come into play.... at least yet. 

Yeah, next year. The stage is already set with the buyers remorse already. Once they realize they can’t pull equity from it, and next year when they see the value is negative 20 percent, it could trigger additional sell offs from the fear which is why I don’t rule out upwards of 30 percent drops due to the final wave of irrational people pushing values too low. 

 So your scenario is- all these people when faced with a correction (10-19 percent in real turns, likely 5% in nominal terms) see their house fall And panic sell causing a crash.

Meanwhile, the Fed targeting a soft landing or anmild recession including a housing correction watches a crash occur and does nothing?

People avoid taking losses, even when they should - that’s the real psychology. The panic sellers on dips are NOT people that are losing, they generally have capital gains.

Panic sales In the stock market are people whose rode the bull up part way, lose 20%, eat a big tax bill, and buy in after the recovery.

People do just about anything to avoid realizing losses.

Quote from @John Carbone:

Quote from @Michael Wooldridge:

Quote from @John Carbone:

Quote from @Nicholas L.:

@John Carbone

I still don't think I understand the big deal around phantom equity.  I probably had some myself.  I bought a new primary in 2019.  Refinanced into a low, fixed rate.  So if my primary jumped up from what I paid for it in 2019 to something silly in 2021 or 2022 and is now back down... so what?  I didn't tap it, don't need it, and am not a seller.

Is this just a sign of the reduction in prices?  Or a cause for concern?  Or both?  Won't the biggest 'losses' be in primary residences that are above or significantly above the national median?  Will it hurt investors?  

It's just pointing out the facts. Over the summer it was assumed everyone had the equity they thought they had, but once rates increased sharply, it instantly vanished. We are now slowly seeing that realized in the market with declining home values. HELOC's have been a big contributor to inflation, so having values drop and rates rise virtually nobody will be doing them anymore which is good for the fed. The biggest concern is for peak buyers who panic from the drops or are forced to sell. There is a lot of psychology of someone paying 500K for a house last summer and being told by banks it's worth 350-400k for an average primary owner. Logically they are better off staying put, but to those people You can see some irrational decisions up to and including handing back the keys. I just read recently up to 70 percent of homebuyers regretted their purchase during Covid already…. We won't see the end of this until likely next year, but I do know values won't be higher a year from now.

Agree with the psychological aspect. But where are you seeing properties that fit this: 

"There is a lot of psychology of someone paying 500K for a house last summer and being told by banks it’s worth 350-400k for an average primary owner."

That's 20-25% on essentially median values. I don't think there is a market in the country that has hit that, not even close. The big hits have been on the higher end as called out and certainly not to that degree. 

Or is this just back to what you are predicting because the above example hasn't' come into play.... at least yet. 

Yeah, next year. The stage is already set with the buyers remorse already. Once they realize they can’t pull equity from it, and next year when they see the value is negative 20 percent, it could trigger additional sell offs from the fear which is why I don’t rule out upwards of 30 percent drops due to the final wave of irrational people pushing values too low. 

 So your scenario is- all these people when faced with a correction (10-19 percent in real turns, likely 5% in nominal terms) see their house fall And panic sell causing a crash.

Meanwhile, the Fed targeting a soft landing or anmild recession including a housing correction watches a crash occur and does nothing?

People avoid taking losses, even when they should - that’s the real psychology. The panic sellers on dips are NOT people that are losing, they generally have capital gains.

Panic sales In the stock market are people whose rode the bull up part way, lose 20%, eat a big tax bill, and buy in after the recovery.

people do just about anything to avoid realizing losses.

Jacking up the rates kills refinancing. This slows down consumer spending dramatically.

We're heading to a split Washington. That means less spending. Stimulus spending (increased demand) plus supply shocks (decreased supply) = less activity at higher prices.

Inflation is already dropping/negative (MoM). It'll take another 8 months for YoY to stop growing, because that's how time works.

We just went through a mild recession. We may go through another mild one. It's not likely to be a depresssion... and that's what the "Great Recession" was, a full on depression. National housing markets only crash in a depression, that seems unlikely.

Could you lose 5%-10%? Sure. Could some markets lose 10%-20%? Of course. But is the world coming to an end with 5% short term rates? Nope. The fed is trying to jack rates as high as they can without killing the economy so that they have room to cut in the future.

Every depression has been led with bank failures and similar economic calamities. Inflation is running at 8%-9% and mortgages are at 7% - i.e. -1% real rates. This is hardly a crazy rate environment. The world did NOT begin in 2006. We've had recessions before, and will again. They suck.

But if you're over the age of 30, you've been through them before, enough drama.

Quote from @Bruce Woodruff:

Quote from @Greg R.:

I for one, would call a 30% decline from the peak a crash.....
We may all have our own definition, but that would suffice  as mine....

30% is a pretty bad bear market.  Crash would depend on time frame. In the stock market a crash is normally within a few days or weeks. Housing is slower, but crash requires abrupt change.

30% over three months, definitely a crash. Over one year, probably a crash. If it takes two years? Harder to call it a crash.

Hiowever, you do need to dig a little and figure out if it’s the “median house” or “median house sold.” If the houses on market simply shift down (because upper end sits tight) that’s not really prices dropping.

We shall see. I think a national average of 15% nominal drop, 25% real drop, is more likely, but we’ll see.

I think you have to impute the "cash" or equivalent you've put in.

But you have "cash" in the business, it's the opportunity cost. If you sold the house as a flip, what would have happened.  $160K value - 10% closing costs = $144,4\000. If you sold it, you'd have $144,000 in cash, less the $105,000 you put in, so you have $39,000 "invested" in the property, even though your original capital is back out. If you want to be fancier, that $39K is really $26K because of income taxes, so you can run it off $26K.

So it really depends what you are trying to figure out. But in choosing to "Refinance" instead of "Sell" you are leaving cash in the house, it's probably worth using that as your denominator, that's the value you created from running the rehab job.

Quote from @Kerry Pangan:

Quote from @Nate Sanow:

2 thoughts here. 1. Conventional doesn’t have to be 20%, it can be 5% or even less. 2. Does the second property have to be a house hack? 

I ask because brrrr will scale much faster and 20% down will keep your money tied up. Food for thought. Best wishes to your success 

Yes my goal was to HH the next property. So conventional loans are reachable 5% down? My fiancé hasn’t used her FHA yet either I’m explored the idea of her getting a property through her name.

 I bought a vacation home this fall. My wife is planning to get one this Spring. We're going to stay in each one for a bit this summer, see what improvements are needed, and away we go. We'll move between them during the summer and get a feel for both.

Then we'll have two STRs plus vacation homes.