Quote from @Bob B.:
Quote from @James Hamling:
Quote from @Henry Clark:
There won’t be a buyers market for the next 10 years.
Interest rates up- people less likely to sell since they would need to finance a new house. Less houses on the market
Contractor capacity- far behind demand curve
STR- two units at 50% occupancy takes one house equivalent off the market. Will STR investors stop buying or start to sell? Only if there is a stock crash and they need cash or their loans aren't refinanced.
Cost- lumber, steel, copper, oil has gone down. This has not translated to the building products market yet due to upward price inertia and supply chain issues. There should be a whiplash timing event in the near future where material backs up So there will be a window where material cost go down Then back up again
Labor- shortage of building trades
Government has spent so much money that investors are competing against the government for resources. This wave of spending will take another 3 to 4 years to work through the economy. Causing labor and material upward price inertia.
Oil- which affects all costs is artificially low due to the release of the strategic oil reserves. When this goes up all other costs will go up further. Less houses as costs go up. Continued sellers market. Oil is the wildcard depending on if the government revitalizes it. Also the Russian issue will keep worldwide costs up until their oil/gas products start to flow.
How are things in Portland? Is there a buyers market there?
Be careful Henry, the countless masses are going to come and say how we are idiots, that homes prices will fall by 30%. No mention of why anyone would do such sale, because that's an inconvenient item of fact, but just how dumb we are to consider such and that without doubt it's a housing collapse, without doubt.
Notice in the analysis for the descending market price it's stated as mass glut of inventory, with no mention of how. We are in shortage, where does the excess come from? Last analysis from NAHB was that if building could continue, unimpeded, and growing at continued rate of growth, parity would be reached with demand in 10 years. 10!.
High rates make people sit, and stay, not sell. Most who own a home do not want to regress to being a renter. Again, how do we get a mass of people happy to sell at descending prices? Either there buying, which provides a bit of an offset in the whole argument and contradicts the descending price argument from no buyers, but more over who would sell to buy at double there current rate? Ok, so only way the argument holds any water is people selling are either dying, leaving the U.S., or becoming renters. Or homeless I suppose, and multi-gen living but I think it's safe to say these are micro % of any whole and can be ignored.
The doom-preaching of a R.E. market collapse simple makes 0 sense. It's not supported by reality. A 30% price decline is not in the cards. To justify any such argument for removes any consideration of where these people will live, why they would sell, of the equity position they are currently in, there existing payments being below rent rates for corresponding unit, the inflated costs to sell in a swap of housing unit....... Basicly the argument for housing collapse of 30% only works if one removes people, as a whole, and every facet of the last several years.
Again, I know, many will say no no no it "must" happen. Why? Why "must" John and Jane Doe sell there home they have at a 4.2% lock, with $150k equity? With servicing payment 40% below what market rents for a similar home are. Why "must" they sell at descending prices?
Fluctuations, variations, but "crash", it's just wishful thinking of those hoping to get a lower bar of entry.
Hi James! Not shooting for a doom post but rather a mental exercise for people to consider as we approach a foggy future.
See my response to henry above. I give some thoughts on where SOME inventory might come from but you're right. With so many home owners who will choose not to sell... it's definitely hard to know how this all plays out.
Generally I'm with both of you... I would like for asset values to remain solid!
I think we just have to stick to the fundamentals out there and be conservative. Always have multiple exits available to you with long term financing avaiable and it will be tough NOT to buy!
I bought a new rehab a month ago so while i'm cautious... we aren't stopping!
Keep pressing out there!
I really appreciate you Bob, I do, and your intent of seeking answers, trying to wrap mind around it all, using what you best know but also readily willing to hear things out and figure the sense of it all.
I am not like the "average bear" here on BP. I get it, most just read a post, do no research on who's saying what, and more over how does anyone really know who any other person is, right, I get it. Point is, I do this professionally for a living, and have for a long time. Not just as an agent, specifically as a REI Professional, specializing in analysis, as a strategist and market projections. As a consultant to private funds and working in the institutional investment environment.
That said, when I say things of analysis and projections, it's purely a reflection of the facts as I have them, not of my personal interests or feelings of such. Personally, I would love to see a significant back-step in median home prices, of at minimum 10%. I, personally, feel that 15%-20% would be best, for people, the middle class. Not in a short period, of course, but over a 2/3Q period. I would like to see this just out of personal greed, lol, for own purchases, but also just as a person who cares about the middle class and knows a strong middle class = a healthy strong country. And vice-versa.
Unfortunately, I can not find any way we get there. Not without some black-swan events. Unfortunately 1 of those scenarios is actual a viable possibility, nuclear conflict. I can't believe I just wrote this in a serious manner, still struggling with the reality of it, but here it is, it exists.
Problem so many are having in there various analysis is there using selective data, selective reference, leaving out totality of market influences. To get any chance of comprehension we must look at the whole, and how all the parts impact the various parts.
In it's own right, yes rates will impact volume, volume falling at certain significant levels are supposed to impact sale price levels. That premise fleshes out. Although we have to use full context and account for all the factors present negating that effect lowered volume should normally have. One of the largest being the liquidity through that economic base, or to simply say the market of potential sellers being in positions of ample financial positions, through multiple measures, creating a low reward high risk environment to engage in a sale, plus no mechanisms to force sale actions.
Rates had been held so significantly low for so long that the vast majority of mortgage holders are in positions of sub 4%/5% rates. Not to mention all the sub 3%. Rates have climbed so significantly, so rapidly, that there is not a sizable grouping of high leverage mortgage holders. Also, the actions of the last 28 months have empowered record low leverage positions into mortgages via transference of equity (selling, reaping, redeploying into next purchase). To give a good contrasting example is citing the '08' collapse and the descending sales, which were driven by resetting mortgage service that was entirely beyond financial means of the holders, from day 1, creating a conveyor flow of forced sale positions. And the volume of such, that is key, many many millions of such "ticking time bombs" were in the system, a "load up" that took many years. It was not economy based or recession or any other factor that made the descending home sale prices other then that specific item and event of the forced sales. The glut of excess inventory is what helped to set a market where those impacts would most forcefully be felt. If the market were at parity in inventory, absorption would have muted some of those impacts.
Today we have a significant net shortage of units, measured in the millions. Roughly 6 million as of my last recount of the data. This is what we refer to as absorption. Rates can and should impact that but still, we are talking a massive capacity to absorb units.
The notion that builders can or will slash new unit pricing 20% is just infantile thinking, it is a very ignorant statement that is far from true. On average 20% is the entirety of a builders margin, many such as spec builders operate on thinner margins. And again, the absorption rate and the capacity to carry units is being ignored by many. As well as ancillary opportunities, such as moving them over to rentals.
Which brings the next item, demand for rentals and the shortage of units in rental market is nothing short of historical. In large part much of this information has been suppressed, by design. The demographic of the renter "class" is, at this time in the U.S>, the loudest class. By loud, I reference the social actions of last couple years. Put the stats on the news for how much rental rates have been climbing, the number of shortage in units, all the strife and struggles, no, powers that be know the hell that will bring.
This absorption rate in rentals is not mentioned at all. I can say, with 1st hand knowledge, it is in the many of millions. Many many.
There is so many factors at play that are pressing the worst possible economic cycle which is Stagflation. I would prefer a different direction, but this is what all the data is screaming. Stagflation is the executioner of the middle class.
Lastly, big factor being ignored is also psychology. The '08' collapse is well in the minds of every homeowner, you'd be hard pressed to find a home owner ignorant of it. That has conditioned people. They are conditioned to know things got very bad, and bounced back, and it was on average just 7 years and not only was all back, but then prices catapulted up. Any struggles to sell, yes, I guarantee 100% this will be in the minds that all they have to do is wait a bit, all have been conditioned for it. Matter of fact, evidence is here, the conditioning is showing itself here by fact of so many expecting a "collapse" in housing prices due to the current turmoil's. This is not 2008.
A person who is in a home has mor patience, and incentive, to wait out ideal sale price potential then a 1st time home buyer has to get into a home. Our society is very gratification based, very. The seller has significant $ incentive, a buyer has the adjustment of a few hundred a month difference, I know which I would bet will break first. Once buyers move through the grieving stages of current rates, comes acceptance stage, in which buyers will engage, who can, as they can. the others feed more fuel into the rental pool AND all add's significant added pressure for single family rentals, which add's to the buyer pool for such. Many institutional investors are very happy at a 5cap.
This is about half of the total current forward market analysis and formation of my projections, but I believe I have laid things out well enough and long enough to well show the point.
As @Henry Clark detailed, fluctuations and variances in things to come, but a collapse, 15-20% drops, a run away meltdown of any kind is just not in the cards. Short of, as i said, a "Black-Swan". If Nuks go off, in any number, all bet's are off, that is a area so off book that no idea of anything at all is possible. That would be a level of anarchy and chaos in global markets the likes of which nobody has ever seen.
