All Forum Posts by: Michael P. Lindekugel

If inflation keeps high causing rates to rise, home prices may stall and rents may start rising. Its important to be flexible with your strategy and not rely only on appreciation. However in case of sharp recession both may go down for little time, hence important to keep Cash aside to ride the storm (if any).

rents price inflation has been happening in most the country since last year. some places as much as 15% to 30% rent price inflation. existing home owners buying second homes are not listing there first home for sale couple with an existing shortage supply of all types of housing.

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Quote from @Joseph Coleman:

yep. recessions don't equal corrections or crashes in home price values. when there is home price deflation in a recession that deflation is a symptom of the recession not a cause of the recession. the Great Recession is the only recession caused by housing and lending. in this instance the Fed is specifically targeting home price inflation with QT to increase supply increase yields to cause mortgage rates to rise to cause demand to fall to cause a decrease in the rate of home price inflation to create a drag on GDP to slow inflation.

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Quote from @David Dachtera:

Quote from @Michael P. Lindekugel:

Quote from @David Dachtera:

Purely my opinion ...

The housing shortage is nowhere near resolution. We're probably looking at another 3 to 4 years - or more - before new construction begins to catch up with both the latent and future demand. This is based on what economists were saying some 12 years ago. Experience since then in the housing market has supported their conclusions. I see prices for both SFRs and rental properties continue to remain high and probably rise even more going forward. Likewise rents.

In the broader economy, what we are seeing is -NOT- inflation. Corporations are not hurting - they're showing record profits which continue to rise. Yet, they continue to raise prices and restrict supply even beyond the impact of the pandemic. It's -NOT- inflation - it's price gouging, pure and simple.

I can hear the comments now in boardrooms across the Country: "The government is going to force us to pay you more? Fine. We'll help you spend it!"

My $0.02 ...

it would take tens years for new construction to catch up to the supply shortage of all types of housing units assuming the rate of production increases. a housing supply shortage existed just prior to the Great Recession.

not sure how you think we don't have inflation. The CPI is screaming inflation. the PPI is screaming inflation. The BLS indexes for retail sales, new and used autos, food and beverage stores, restaurants and bars, building materials, clothing are screaming inflation. this is the highest inflation since the 1970s. the current bout of inflation was demand driven before there were supply shortages.

The previous housing supply shortage was artificial - the banksters (who admitted on camera in a documentary that THEY caused the crash) increased demand through predatory lending. The actual demand for housing was proceeding apace until then.

Note also that I said "begins to catch up", not "catches up". Lowered pregnancy and birth rates during the pandemic will likely cause demand to flatten out a bit in 18 to 22 years or so. That will help, but we may still be playing catch-up at that point. The influx of European refugees from WW-III will have an impact, also.

As for things "screaming inflation", how many wrongs does it take to make a right? Again, big business is not hurting - it's wallowing in excess profits and STILL raising prices. That's the literal definition of "price gouging". There is also no economic or financial evidence to show that big business was hurting prior to the pandemic. Prices and profits were both spiraling upward out of control at that point. So, even THAT inflation, wasn't - it was and is price gouging, pure and simple.

the BLS would disagree with you that the housing shortage starting with under building around 2000 was artificial. the same BLS is reporting the housing supply shortage of about 4 million today. predatory lending was only a a small part of the Great Recession collapse in lending and housing. there was fraud up and down the mortgage pipeline with little to now auditing and over sight. mislabeled loans in A paper tranche MBS, derivatives, derivatives of derivative, credit default swaps, etc. a lot more complicated that stating predatory lending.

no, that is not the literal definition of price gouging. price gouging is raising price beyond what is reasonable from sudden demand. all prices are rising not one industry or one company. that isn't price gouging. that is inflation.

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Quote from @Luka Milicevic:

I've been in real estate for almost 10 years now and I've read this same post every year for the past 10 years.

i haven't read any economic research saying that every year for the last ten years. recessions don't equal housing corrections. housing corrections don't equal recessions. this is the first time the Fed is specifically targeting house price inflation with QT selling off assets prior to maturity to increase supply and increase yields to cause mortgage interest rates to rise to decrease demand.

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Quote from @Peter Mckernan:

I am a millennial and I believe I am somewhat smart, not a genius but just below one jk lol. The rates are getting higher as we speak due to inflation, gas prices, supply chain issues, and the bond market. The FED as we all know will raise rates to combat that inflation piece which will have a slow change on rates, the bigger changes will come with above and the comments by the FEDs.

I recall sitting in a Bay Area meet up in 2015 with the economist predicting the crash coming in 2017 (I stopped buying properties between 2017- early 2019 thinking we were screwed due to these talks, wish I would have bought then), and a lot of economists predicting the fall of the economy and real estate dating back to 2014. That being said I'm not saying we are on the tipping point of a crash or not. What I am saying is that I would listen to a select few people that have been studying the market for a long time, not the news or the talking heads on the news. Keep an eye on people that have made millions, and billions in the stock market, real estate and more to see what they say and do. The biggest challenge these days is reading into a headline when we know that it is clickbait (thanks @Michael P. Lindekugel this is a sincere thanks due to always needing to talk about it to see what other people are seeing in their markets). All in all, just make sure you are heads up and watching the market with not being completely over leveraged.

@Michael P. Lindekugel

The Fed raised the federal funds rate which does not impact 30 year mortgage rates. federral funds rate is the interest paid/charged between member banks for overnight deposits. the federal funds rates will cause increases in interest rates for corporate borrowing. home mortgage interest interest rates are going up for two primary reasons. First, investors in treasuries expect inflation and investors expect the Fed to react to inflation that is reflected in the increasing 10 year treasury yield. second, the Fed announced instead of allowing QE assets to mature and roll off the Fed intends to sell off assets prior to maturity as part of QT increasing supply decreasing prices and increasing yields.

i haven't said anything about a crash. recession does not equal home price deflation. there are a few recessions in which housing experience little impact. when those recessions were Fed induced the Fed was not targeting home price inflation necessarily as a contributor to inflation at that time. today, the Fed is specifically targeting house price inflation as a large part of GDP and large contributor to hyper inflation. on of the many reasons for the housing collapse during the Great Recession was over leverage which why high leverage home loans are not popular today. Fed induced recession causing home price deflation does not equal crash or collapse. when home owners are not over leveraged, have cash reserves, and have income then home price deflation isn't a problem as home owners are not at risk of default. a recession could be resetting over valuation as a home price correction. corrections in the housing market are usually about 10% but they could be more without causing a crash or collapse with massive default. no different price corrections on wall street to weed out over valuation and over leverage to reset or normalize asset pricing which does not equal crash or collapse necessarily.

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Quote from @Joe Bertolino:

I see a recession coming… but I don’t see any indication that real estate will take a significant hit. Buyers are well qualified and we have not had significant new construction since 2009. Supply chain issues have pushed new builds from 4 months to 15 months. There is basically zero standing inventory. Rents are not significantly less than mortgage payments for equivalent properties. Most ibuyers are still going full steam ahead. Until we solve the inventory issue, which won’t be anytime soon, pricing will not take much of a hit. Rate increases might take things from white hot to just hot.

The US started under building in the very early 2000s. there was a housing shortage or "zero standing inventory" going into the Great Recession. recessions don't always cause housing price devaluation. all but one of the ibuyers are not profitable. hemorrhaging cash flow. investors are subsidizing operations and cash flow. if you read the SEC filed reports, then you would know that. ibuying is a small fraction of the total transactions. ibuying isn't the problem.

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Quote from @Kristofer Kretsch:

I can only speak for myself and I try to think of things a number of ways, individually, micro-economically, and macro-economically.

The first is can I sleep at night. I try to think through a "stress test" type scenario like what would I do in an environment that saw a 10% drop in real estate value, maybe the loss of some % of rent, and (for good measure) between my partner and I maybe one of us looses our job.

The second thing I think through is am I a buyer, a holder, or a seller in this market and would that affect my ability to sleep at night. My intention in real estate is to buy and hold, but maybe things don't work out as intended. Anyway, I think through what type of deals would entice me to buy and if any of my properties are not turning out like I expected and should but cut while the market remains hot.

The third thing is knowing my local real estate market. In my area I suspect housing price appreciation/inflation may be higher than the headline numbers as I've perceived the average quality of homes for sale declining while the average sales price still rises briskly. That said, I think there is a limit to the downside in demand because part of what I believe is driving real estate in my metro is the work-from-home trend and the influx of people moving in from other higher priced metros. My metro is still relatively affordable (though the gap is closing) and offers a higher quality of life (in my own opinion and I am biased) relative to two other metro's in the region. If a rise in interest rates were to make homes more expensive, we'd probably still see the influx of home shoppers looking for affordability. At least this is what we saw in the last monetary tightening in 2019.

I do follow the big macro economic trends and thoughts of many influential speakers but I only view them in broader terms of market perspective and context and have learned better than to try to time the markets. I'm a big fan of everything on bigger pockets and listen to economic/market thinkers like Dalio, Rubini, Summers, El Erian, Ivy Zelman, Jim Cramer, Hoenig, Jeff Currie, and even some of the MMT thinkers to get some alternate perspectives, among others. Ultimately I find all these thinkers insightful, even if their opinions differ. That's the beauty of the markets, it's a celebration of the difference of opinions. It's always better to try an understand the argument behind what each of these very smart people are saying than trying take it at face value. Sometimes the assumptions and conditions change. Often they have different timelines and are only discussing relative probabilities of events occurring. Often it seems that they are arguing very different things but in someways they are not all that dissimilar. It's good to keep an open mind and to remain a learner. I'll also say again that conditions and assumptions can change. The fed could decide to reverse coarse, or the fed could decide to crush inflation. Maybe the US budget deficit finally matters, or maybe there's a flight to safety and everyone wants US dollars. Maybe Ukraine spreads into a broader European war. Maybe we have 1970's style stagflation. Maybe we have a minor recession and QE is back and bigger than ever. I really have no clue and I certainly don't know enough to make a prediction with any real degree of certainty that I'm comfortable with. All these factors have an impact in real estate but I can't control them. What I can control is the following: I know myself, my investments, my market, and will remain open minded, and hopefully that will keep me making good decisions. And that brings me back to #1, can I sleep at night. Oh boy, it's 11:30 PM ET and I got to get some sleep. Good night all!

investors with significant initial investment are at little risk in a correction unless there is a material significant loss of income impacting the ability to cover the annual debt service, OpEx, and capital expenditures. almost all commercial lenders stress underwrith loans with higher interest rates compared to current, higher OpEx, and higher capital expenditures. i do the same decision analysis for my clients prior to pitching a deal to a lender. devaluation does automatically mean financial distress when rent hasn't decreased or decrased rent continues to cover OpEx, debt service, and capital expenditures. SFH and 2-4 unit rental properties can be priced from demand and supply and not the income generated as is the case for commercial financing. commercial lenders many times require quarterly financial reporting. conforming lenders dont.

i have farting 🌈🦄 NFTs. DM for this exclusive invitation. KIDDING.

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Quote from @Paul Sofia:

Quote from @Michael P. Lindekugel:

The Fed information is factual. House price over valuation is national from economic research firm Rosenberg Research & Associates.

I provide my economic and financial opinions based on my education and experience to all clients – residential, commercial, investment. A prospective home buyer with a large down payment, significant cash reserves, and long-term employment has very little financial risk when there is home price deflation. If they should or shouldn’t buy a home is complex analysis. Home price deflation is a risk for someone at risk of default. Those are not my clients.

real estate markets are mostly local. Seattle is not boom or bust as is historically Las Vegas, Phoenix, and Miami.

I don’t know what experts you are referring to in your statement “I know the experts that screamed about the 20-30% decline in 2020 and again in 2021”. I don’t know any economic research or credible financial research that was claiming those declines in 2020 and 2021. I told my clients our hot market was going to get hotter. Nationally, the US is short 4 million units of housing of all types. Seattle has had a supply problem since the early 2000s. There is the supply constraint. There is the demand outstripping supply which not the same as the supply constraint. Those two economic problems persisted over the last two years causing home price inflation (not appreciation. Not the same) and rent price inflation.

Each ¼ point increase in 30 year fixed mortgage rates decreases home buyer purchasing power by 2.5% to 3%. When mortgage rates hit 5% the cumulative decrease in purchasing power is 17% to 20%.

The Federal Reserve definitely does not want continued hyperinflation. home price inflation makes up a large part of US GDP.

Agreed. Wall St. has created a monster. Most have no clue what is going to happen.

not quite how it happened. The Federal Reserve created the monster through the fastest and largest QE in US history to prevent a pandemic recession. that created monster was wall street. wall street saw what happened when the Fed engaged in QE to pull the economy out of the Great Recession. Wall Street remembers and wall street played the Fed knowing the Fed would engage in QE to prevent a pandemic recession essentially transferring investment risk to taxpayers which led to very confident wall street, hedge funds, super duper very wealthy investors, very wealthy investors to engage in highly leverage investment or investment on margin with little risk of loss of principal. margin investment often results in exponential asset price inflation beyond values in a cyclical cycle. leverage investment demand creates asset price inflation. other investors invest contributing to asset price inflation beyond non margin or leveraged investment would accept. when there is a correction, the same spiral upward causes the exponential downward price devaluation. companies have to cover margin calls by selling other assets potentially flooding supply of those other assets and depressing prices of those other assets. and flooding supply of the margin call asset from the sell off and depressing prices in the margin call asset in an exponential spiral downward. each company in a panic and in free fall is selling to cover the margin call at exponentially lower prices.

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Quote from @Jay Hinrichs:

Quote from @Michael P. Lindekugel:

Quote from @Jim Spatzenfeld:

In 2005/2006 the only reason why we had a housing shortage was because every man and his dog qualified for many mortgages and therefore everyone wanted to buy a few homes to rent and/or flip, but not to live in.

This time around there is a real shortage because way too few new homes have been built since 2007 to keep up with population growth. Vacancy rates for both owner-occupied housing as well as rentals is at a record low and for the first time in 100 years the average US household size grew because young folks can’t find a home to move out and start a new household.

that is not correct. The US began under building housing of all types around 2000 creating the housing supply shortage.

sorry dont buy that one.. there was a HUGE glut of unsold new construction that took years to clear off the books from the GFC

you have access to the economic research. not as if you need a special account to search academic research as was the case in the 2000s in addition to the BLS, the Fed, etc. the US began under building around 2000 compared to population growth. the glut was the result of the decrease in demand from the great recession collapse. builders were on a tear based on current demand and cheap capital not basing building on long term demand for housing. how many builders failed over extended?

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Quote from @Greg H.:

There has been a post like this every month or so on BP for the last 5 years or so. Obviously we know the outcome of those doomsday posts. I have never been a follower of national real estate trends in my 35 years or so in this business and I have been through a few "crashes". So you can throw all the numbers at my you want but this does not feel like a crash is on the immediate horizon.

So for those who are predicting the big crash of 20-30% surely y'all are selling right? I bet many here on BP would be buyers at 80% of appraised value so you would "make" money.

nationally, in 35 years there has only been one crash or collapse not a few - S&P CS index, FHHA index, NAR index, Fed indexes, and a bunch of others. that crash or collapse was the Great Recession. there have been many normal business cycle corrections. asset class corrections get rid of over leveraged investment. i never suggested a crash or collapse in the context of the Great Recession that implies many more problems and failures in house pricing and lending. that is not a correction. i suggested a bear market could mean a significant devaluation in home prices. home price devaluation is not a collapse when there it not material or significant default and foreclosure.

assuming real estate assets are income producing, then there would be no need or reason to dispose of those assets. i would not advocate to my clients to sell of portfolio assets with a looming recession.

what moron idiot owner would sell for less than FMV? how/why would an owner sell to an investor at 80% of FMV? that owner has really really bad counsel.

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All Forum Posts by: Michael P. Lindekugel

Michael P. Lindekugel has started 2 posts and replied 32 times.

Post: A recession is coming and maybe as early as summer

Post: A recession is coming and maybe as early as summer

Post: A recession is coming and maybe as early as summer

Post: A recession is coming and maybe as early as summer

Post: A recession is coming and maybe as early as summer

Post: A recession is coming and maybe as early as summer

Post: A recession is coming and maybe as early as summer

Post: A recession is coming and maybe as early as summer

Post: A recession is coming and maybe as early as summer

Post: A recession is coming and maybe as early as summer