patrick.net

HunterTits says

You fucks getting all this 'equity' from a bubble that kept me from affording a home won't get much in the way of tears from me. Nope. I am just gonna sit back and watch your mortgages-you-fucking-should-never-have-taken-out-in-the-first-place go underwater with you ending up walking away.

I bought in 2015. I 100% believed I would lose money and that prices were still too high after rising from 2012 lows. I put 20% down and took a traditional mortgage. I bid under asking when I bought the house, and was ready to walk if they said no. So basically I wasn't speculating, I was buying an overpriced house to live in.

At some point, I was able to refinance to a 1.99% 15 year fixed. This basically equalled monthly the extra payments I was making on my higher APR 30 year fixed.

So I have no need for your tears. You can be bitter that I got lucky. That's fine. I have no problem with house prices declining. I just want a put option on the value of MY house, or my region's housing.

By the way, if YOU think house prices are going to come down, you should be looking at the exact same thing I'm looking at. If you put some skin on housing put options, then when prices decline, in addition to getting a house at a lower price, you will have your put option money to buy that house with.

If you think we are in for more insanity of rising prices, or even just that prices won't decline, you can sell me the put options, and take my money in the form of an insurance premium. And if you are/have been irritated with prices rising out of your reach, and think that will continue, you can buy some call options, and offset your purchasing power loss as the prices rise.

Don't get angry, get educated, positioned, and risk mitigated.

@Zak,

How much do you think real estate prices will fall in your area? How much is your PITI now? How much would it cost for you to rent an equivalent house like yours? Let’s go through the math and see if it’s worth selling.

If it’s your primary residence I wouldn’t worry about it too much. It’s a place to live, not an investment. If you like your house, hunker down, raise a family, live your life. I guarantee in 40 years when you’re dead your kids will sell it for more then you paid.

If it’s an investment property you bought last year, sell it if it isn’t getting good cash flow. We probably are at the peak right now. I don’t think a crash is coming, but I don’t know if it will appreciate a lot from here. (Although I wouldn’t be surprised)

Zak says

just put my head in the sand and ignore the world around me? LOL!

Ahem,
B.A.C.A.H. says

If you bought the place as a speculation to flip, then flip the damn thing while you are ahead.

Eman says

How much do you think real estate prices will fall in your area?

https://www.zillow.com/san-diego-ca/home-values/?source=patrick.net

We're probably in line for a 40% correction, probably heading to 50-60% if the typical overcorrection scenario plays out. So for the median San Diego house we're looking at 400k - 600k reductions over the next 2-4 years. That's a LOT of people getting half a million bucks "poorer" at a time. How many of them will be underwater and overextended? A lot.. that's why my anticipation of the over correction.

The only thing that could offset this is if the losses only occur via inflation offsets. If inflation is running 10% per year, then house prices staying flat = 40% reduction in 4 years !!!!

Yikes!!!

Zak says

We're probably in line for a 40% correction, probably heading to 50-60%

Bawahahahahahahahahahahahahahahhaahahahah
holy shit, gotta screenshot that post!!

Zak says

no need for your tears. You can be bitter that I got lucky

I blocked that person.

Seems to be consumed by anger to the point of putting "I don't give a fuck" gifs to folks' comments, without anything to add except that s/he doesn't give a fuck. I don't give a fuck that s/he doesn't give a fuck.

Zak says

I have no problem with house prices declining. I just want a put option on the value of MY house, or my region's housing.

Here is a different perspective on it. We've been in your position for decades. Put, call, hedge, too fancy schmancy for us. This is our perspective:

If you live in SD, and you have huge equity because of irrational pricing, then it would reason that your owners' equivalent rent is much higher (per month) than your actual PITI expense (1.99% mortgage you cite, Prop-13 assessment). It means, your out of pocket is significantly less than your owners' equivalent rent. The difference is your ownership discount.

Some ways to enjoy (hedge, if you wanna talk fancy) your ownership discount that don't involve fancy schmancy derivatives, equity loans, blah blah:

- pay down the mortgage even faster with your monthly discount;
- keep your property in top condition with super-maintenance;
- invest in yourself or kids if you have them;
- save/invest all the monthly discounts, keep track of them on a ledger separate from your household stuff, to build dry powder for a downpayment on a purchase whose opportunity, if you are right about a coming collapse, will soon come.

Zak says

By the way, if YOU think house prices are going to come down, you should be looking at the exact same thing I'm looking at. If you put some skin on housing put options, then when prices decline, in addition to getting a house at a lower price, you will have your put option money to buy that house with.

If you think we are in for more insanity of rising prices, or even just that prices won't decline, you can sell me the put options, and take my money in the form of an insurance premium. And if you are/have been irritated with prices rising out of your reach, and think that will continue, you can buy some call options, and offset your purchasing power loss as the prices rise.

Don't get angry, get educated, positioned, and risk mitigated.

Explain step by step please? Who, what, where, when, how much etc. Like, who do I call to set something like this up?

You already bought the product you want to buy and just don’t know it. Houses already come with a put option at 80% of their value. You put 20% down to buy the place, and if you don’t like it, you can walk away at any time.

If you think the housing market is going to collapse 50%, then just leverage the hell out of your house, keep the money in cash, then buy a new house when it drops and walk away from your old property.

Of course you won’t do this because deep down you realize that a 50% decline isn’t going to happen.

pudil says

Of course you won’t do this because deep down you realize that a 50% decline isn’t going to happen.

I think that median house prices will revert to 3.5 - 4x the median income. I think they will overshoot heading there.

https://www.sandiegocounty.gov/sdhcd/rental-assistance/income-limits-ami/?source=patrick.net

According to the county, the median household income is 106k. That puts the median house price at 424k at 4x median income (the traditional rule).

If we have 10% inflation per year for the next 4 years, and wages keep up with inflation, then the median household income will be about 150k. 4 x 150k is 600k . So with a high inflation rate and more "normal" interest rates in the 6-8% range or even gasp 10%, I'd expect the current median house @926k to lose about 326k nominal over the next 4 years.

But the "expected" value of $926k with 4 years of 10% inflation is about 1.4 million dollars. so the "real" loss will be more like 800k of future dollars, which are 1.4x todays dollars. So that's about a $571k loss in todays dollars. Does this math check out? Current estimated value of $424k based on income, plus the estimated loss in today's dollars of $571k = about 995k .. 995 - 926 = 69k .. so my estimating has an error bar of about 10% with 10% inflation.

Of course, with less inflation, I would expect the price to fall further than to 600k because wages won't inflate to the same extent. With MORE inflation, house prices might only fall a little bit while wages surge ahead. The median wage would need to surge to $231k household in order for today's median house price to stay flat in an expected stable market. That is a 217% increase in wages. Over 4 years, that would imply approximately 20% wage inflation per year (1.2 ^4 = ~2.07)

Of course, you could use a different multiple than 4x. But why would you. Is it "different this time" ?

WineHorror1 says

Explain step by step please? Who, what, where, when, how much etc. Like, who do I call to set something like this up?

That's exactly what I was asking here to you guys. Well, the how really. The what is pretty clear: put options on the housing market.

There was a decent suggestion to short home BUILDERS, but that is different than shorting the housing stock.

The Chicago Mercantile Exchange has a housing stock tracker for each of the major metro areas.

https://www.cmegroup.com/markets/real-estate/residential/SandP-case-shiller-price-index.html?source=patrick.net

There is some way to purchase options on these futures, and I'm trying to work out how. It doesn't appear that there are traditional brokerage tickers in an ETF or something to track these, and instead it looks like it might be necessary to open an exchange account with a SME broker specifically for this purpose.

This would most directly enable you(me) to hedge against market movement locally. The most direct method would be that one I'm trying to avoid: just selling my house.

I've also considered creating an S-corp to own the house, signing a long term lease to myself, and selling shares in the S-Corp to one of these REIT entities. The problem is, I then pay myself (and other shareholders) rent, but have to claim the rent I pay to myself as income, since rent is not a deductible expense. This would create a double tax on income situation.

Zak says

According to the county, the median household income is 106k. That puts the median house price at 424k at 4x median income (the traditional rule).

dear god. your "rules" of 4x median income equals median house price mean jack shiat in the real world. Median income means nothing. Of course the avg joe is priced out of the market. Why else would investors buy new SFH's/Townhomes left and right to rent out? Some new communities are solely built to be rented out and purchased by big time investor funds. There is an army of renters waiting in line.....most of those family will be hit with ever increasing rent prices and inflation in cost of living (gas, groceries, entertainment) In other words: your ideal blue collar forever-renter who will never be able to catch up or keep pace with asset inflation.

Real world in SD looks like this: builders see so much demand that they no longer go by first-come-first-to-reserve-a-lot. You have to enter a drawing and/or bidding in order to secure a lot.
One of the owners of one of the local SD builders told me that the 1M+ dollar homes are purchased mainly by 35-45 year old couples that bring 250k+ household income and a hefty downpayment to the table. Some have 400k household incomes. Builders dont make money by building small, affordable SFH homes. Its either higher end or multi-family.

If you want to know whats up, go to 3 Roots in Sorrento Valley and check out how quickly those 1M dollar homes sell and who the buyers are. Biotech money. The RSU's alone pay for the downpayment after the covid spike in stocks.

Zak says

I think that median house prices will revert to 3.5 - 4x the median income. I think they will overshoot heading there.

It didn’t in Japan. They now have multigenerational mortgages to pay for the inflation.

Lowes and Home Depot stocks are both down about 25% from last December. Back then you might have shorted or bought some put options. Now it's a bit too late.

That said, I don't think this housing crash will be as bad as the 2009 one. Banks haven't been lending as recklessly. The last year has seen crazy increase in housing, but people who bought 3 years ago or more have a fairly big equity cushion even if they only put 10% down. People aren't buying ARMs because the interest rates on them aren't much better than on a standard 30 year. And with people getting standard 30 years, there's no interest-only option, so they have been making at least a tiny bit of progress in paying off the principal (and building an equity cushion). Actually, with interest rates so low, they are paying more of the principal than in the past when rates where higher.

So, I wouldn't specifically go about trying to gain from a housing downturn. Instead, I'd look broadly for opportunities to gain from a general downturn in the economy. It seems that you are safely in your house and can make the payment, so you just don't need to hedge a price decrease.

SunnyvaleCA says

but people who bought 3 years ago or more have a fairly big equity cushion even if they only put 10% down

Do they? Or have people been "responsibly refinancing" continuously to finance life as prices have risen. Talking to my neighbor, they have been pulling cash out to buy rentals in Texas. It's all good until some values decline, or a renter skips out on a couple months...

As many have correctly stated, there won't be a housing only crash. What they fail to follow that with, because it scares them too much, there will be an economic crash. Do you know your neighbors? Are you in a city? Does your property have a well, and means to produce heat and light? Do you have land to farm, rations? If not, then sell, and buy something that gives you as much of the above as possible. If you already have it, stay where you are.

DooDahMan gives some of the worst financial advise I've ever read. I'd speculate it's a Logan clone account, as his original account has the record for ignore's, and reaches no one on this site anymore. NEVER leverage yourself in a collapse. You have no idea what the government or whoever you owe that money to might try to do to get you to repay. When people become desperate, don't owe them any favors...

Zak says

SunnyvaleCA says

but people who bought 3 years ago or more have a fairly big equity cushion even if they only put 10% down

Do they?

The avg homeowner is probably in the best situation historically speaking. Shit ton of equity, locked in low rates + inflation. It all comes down to monthly payments. Nobody in their right mind gives up on their low, locked in rates and leaves homeownership voluntarily. I would never pay more monthly to RENT and make someone else rich because I speculate my housevalue will lose 50-60%. My mortgages on all my houses (primary + investments) are all significantly lower than market rents. Most homeowners are in the same boat.

Back in 2008 people - who shouldnt have bought a house in the first place - were forced to sell
Today, owners - who should own - are only selling to buy another house

NuttBoxer says

DooDahMan gives some of the worst financial advise I've ever read. I'd speculate it's a Logan clone account

NuttBoxer doesnt own a house himself but claimed he's somehow winning by renting in California long term. Giant LOL.
I asked him about specifics, what type of house, area etc. He never answered me and blocked me simply for asking. He also claimed I am Logan Motashami (which was a great compliment but far from true). Now DooDaMan is Logan M in NuttBoxer's mind. Somehow the word "Nutcase" comes to mind..... :p

If you wonder who Logan M is....he's a housing data analyst and financial writer.
https://loganmohtashami.com/

I don't have a huge dog in this fight, although I do own real estate, it's no longer my primary store of "wealth".

I have this one question, when was the last time the housing market followed the 3-4x median income rule?

I honestly can't remember when that was still valid, maybe the early 90s?

NuttBoxer says

DooDahMan gives some of the worst financial advise I've ever read. I'd speculate it's a Logan clone account, as his original account has the record for ignore's, and reaches no one on this site anymore.

hmmm

insightful observation.

guys i know passionate topic.

but housing in a long run will not go down unless there is major catastrophe like tornado or war. with 8% inflation, which is probably closer to 20%, price of everything going up, that means price per square foot to build is going up, that means labor cost is going up, its not gonna get cheaper. housing like stock market, work on compound interest almost. that's just how it works out.

i didnt used to understand this in the past well, but i do now. i still prefer stocks over housing as investment, no property tax costs, dealing with renters, or stupid communist laws... i hear nightmare stories from friend landlords who rent places out.

DooDahMan says

NuttBoxer says

DooDahMan gives some of the worst financial advise I've ever read

Doo Dah Man isn't concerned - you are still working and hoping to have a decent retirement etc.

As for Logan's advice - might be time for you to pay attention, he has a stellar track record, is a multimillionaire and has some great street creds. And yourself ?

I think I can answer that one for Nuttboxer:

Doesnt own a house > nothing to show for
Tells himself that he is winning by renting in California long term
Labels everyone who has a bullish outlook on housing as Logan Motashami
Never responds to specific questions
Talks about the upcoming economic collapse since (years?)

FortWayneAsNancyPelosiHaircut says

with 8% inflation, which is probably closer to 20%, price of everything going up, that means price per square foot to build is going up, that means labor cost is going up, its not gonna get cheaper. housing like stock market, work on compound interest almost. that's just how it works out.

This.

Builders are all about margins. they couldn't care less if there is a housing shortage and an affordability issue. They care to run a business and make money: Margins.
Costs goes up, buyers pay more. simple as that.

Bitcoin says

My mortgages on all my houses (primary + investments) are all significantly lower than market rents. Most homeowners are in the same boat.

. That's probably true, but not for silicon valley! On the other hand, silicon valley is hardly a stand-in for any other part of the country.

I think your synopsis is correct for much of the country. Hopefully that's true so that the coming crash of the entire economy will be only a moderate downturn for the responsible and semi-responsible new homeowners.

Bitcoin says

I think I can answer that one for Nuttboxer:

Doesnt own a house > nothing to show for
Tells himself that he is winning by renting in California long term
Labels everyone who has a bullish outlook on housing as Logan Motashami
Never responds to specific questions
Talks about the upcoming economic collapse since (years?)

Dude, you took an experimental vaccine, made fun of people that warned you against it, had a negative reaction, came here for help, got it, and then got a booster.

You're the last person anybody should listen to for advice.

Bitcoin says

It all comes down to monthly payments. Nobody in their right mind gives up on their low, locked in rates and leaves homeownership voluntarily.

That's why I think "this time is different" compared to the 2008 crash. In 2004 through 2008 rates were going down and people were taking money out of their house with a refinancing that also decreased their monthly payment (because of lower rates and because of re-extending the mortgage to 30 years). And a lot of people were refinancing with ARMs.

Nowadays I think people are getting 30 year fixed instead of ARMs because the rates are so low for the 30. While housing prices have surged in the last 1 to 2 years, that's a small window for people to use their house as an ATM. And now that window has closed, as refinancing now means trading in a 3.25% mortgage for a 5.25% mortgage, which would massively increase payments.

I'm sure some people took cash out of their homes in the last 2 years, but those people probably aren't the ones that just bought. Those people would be the ones who have owned for a decade, and taking out 50% of the equity still leaves them with enormous equity.

Big recession coming. Job losses coming. Prices will fall. It’s that simple when the Fed aggressively contracts the bloated economy they built.

Inflation in the economy makes it harder for people to afford houses, not easier.

richwicks says

Bitcoin says

I think I can answer that one for Nuttboxer:

Doesnt own a house > nothing to show for
Tells himself that he is winning by renting in California long term
Labels everyone who has a bullish outlook on housing as Logan Motashami
Never responds to specific questions
Talks about the upcoming economic collapse since (years?)

Dude, you took an experimental vaccine, made fun of people that warned you against it, had a negative reaction, came here for help, got it, and then got a booster.

You're the last person anybody should listen to for advice.

Harsh but true.

DooDahMan says

Then you would speculate wrong - if he ever came back here which is extremely unlikely (about the same as seeing Dan8267 again) - he would use his real name as he did in the past - Logan is the real deal like him or not.

Well now I'm certain it's you. Logan(you) started posting under Save Ukraine, everyone who's been on the site recently knows this. Patrick doesn't ban too often, but sneaking around the ignore by creating a second account, better hope he doesn't catch on.

DooDahMan says

Doo Dah Man isn't concerned - you are still working and hoping to have a decent retirement etc.

Retirement is a concept made up by bankers trying to bilk people out of the best years of their life. I've always made a habit of enjoying life now, with no plans on retiring, just transitioning to work I enjoy more.

DooDahMan says

As for Logan's advice - might be time for you to pay attention, he has a stellar track record, is a multimillionaire and has some great street creds. And yourself ?

Yet you still frequent this tiny sub. If you add up all your assets vs your liabilities, where do you end up? If the economy crashes tomorrow, wiping out all assets that derive their value solely from inflated federal dollars, what will you have left? No need to answer, the questions are just for you.

porkchopexpress says

It’s that simple when the Fed aggressively contracts the bloated economy they built.

Federal Reserve deflated once in the early 20th century, but they're scared shitless to ever do it again. They'd be unloading both barrels straight through the back of their head. Not saying it won't happen, just that they don't want it, but are powerless to stop it.

porkchopexpress says

richwicks says

Bitcoin says

I think I can answer that one for Nuttboxer:

Doesnt own a house > nothing to show for
Tells himself that he is winning by renting in California long term
Labels everyone who has a bullish outlook on housing as Logan Motashami
Never responds to specific questions
Talks about the upcoming economic collapse since (years?)

Dude, you took an experimental vaccine, made fun of people that warned you against it, had a negative reaction, came here for help, got it, and then got a booster.

You're the last person anybody should listen to for advice.

Harsh but true.

That reminds me. Gotta put a reminder on my calendar, in a few month its time for my next booster!

NuttBoxer says

DooDahMan says

Then you would speculate wrong - if he ever came back here which is extremely unlikely (about the same as seeing Dan8267 again) - he would use his real name as he did in the past - Logan is the real deal like him or not.

Well now I'm certain it's you. Logan(you) started posting under Save Ukraine, everyone who's been on the site recently knows this. Patrick doesn't ban too often, but sneaking around the ignore by creating a second account, better hope he doesn't catch on.

What is this guy smoking. I changed my name to Save_Ukraine....not DooDaMan. And I was also labeled as Logan by Nuttboxer. This is so stupid....as soon as you show people how wrong they are about their crash fantasies they start labeling you or distract and talk about their vaccine-conspiracy-bullcrap. Hilarious.....Mostly its coming from people who dont even own a house yet....and believe it or not....they are adults! (at least on paper).

SunnyvaleCA says

That's why I think "this time is different" compared to the 2008 crash

Interesting. Your data point is "I think" ?

Here:

https://www.newyorkfed.org/microeconomics/hhdc

There is a slightly better view than "I think". Housing debt is 1.25 TRILLION higher than peak 2008 bubble, and household non housing debt is almost double the 2008 peak, 1.72 TRILLION higher.

You are correct in one thing, in that inflation adjusted, the housing debt is lower than "peak financial system ending catastrophe precipice".

But you will also note that in 2008, interest rates were not at 0 percent, with mortgages at 3% 30yr or 2% 15 year. So the fed lowering interest rates could take the pressure off overleveraged mortgages by offering lower interest rate refis.

Well, I guess we dried out that sponge didn't we? If the fed tries to lower rates, the market will go batshit insane, and voters will probably castrate the democratic party permanently. I almost guarantee you a housing bloodbath is coming. It sounds like a bunch of the housing was soaked up by REIT's with "free money" from the FED. If those REIT's and big money managers start taking a huge hit on all that housing inventory they gorged on, do you think they will ride losses down and down? Or will they try to dump their under-performing "assets" back onto the open market?

The fed is "unwinding" their asset purchase program. My guess is a huge portion of that is shitty yielding 2% bonds from these REIT's. So when dumping these assets onto the open market, you can expect the fed to take HUGE losses, as no one will touch those REIT bonds for anything less than 6 or 8 % yield. This will soak up cash. But even at 8% REIT yield bonds, the bonds will start defaulting. They simply won't be able earn the rents to make the bond payments. Then what happens if huge REIT defaults start putting housing tranches onto the market to satisfy the bond debts? A flood of housing for sale into a cash buyer only market with all the liquidity drying up, and further asset unwinding dumping cash soaking bonds into the market? I say cash buyer only market, because with interest rates heading up to 6 or 7 or 8%, who is going to take out a million dollar mortgage on a 3 bedroom house, with no foreseeable appreciation, and inventory starting to build?

The banks hands may be clean of mortgage debt, but now that banks can invest as well as take deposits (since they don't have to lend anymore, freddie mac and fannie mae just pay them commission), how much do you want to bet that banks have invested in REITs ? Here we go again! You were right, it wasn't credit default swaps, it was REIT leverage this time! (maybe.. this is a bit of speculation). Its something.. 100% sure. And sure as shit, they will be in trouble and "need" another bailout. I guaran-fuckin-tee it. It will be systemic and "no one could have seen this coming".

The fed will meet with treasury, and they will try to cook up some package. But this time we are fucked. Inflation is riding at 9% reported, more like 13% real, and interest rates ate what... A quarter pct.. maybe .75 after the next fed meeting? I shit you not, I will not be the least bit surprised when then next words we hear are the equivalent of "oh fuck" from the government. It will sound like this:

"Due to the dire nature of this unforeseeable crisis precipitated by the global crisis and supply chain disruption from this Russian Ukrain war, we are forced to Nationalize the following banks."

If the people don't fully riot immediately, the very next thing will be:
"We are initiating the following price controls in the face of the foreign inflation influences wracking our economy."

Then its either war with China to distract us from the shit bomb, or again, the people actually say fuck you government, and basically throw everyone out.


I give us about 12 months until the interest rate increase have pushed the edge case housing inventory into the red zone. The early tremors of price declines are already here in all the off metro areas.

Example: Tulsa, Ok. 500+ places for sale including big farms. Price cuts of 100k to 1M + in the past 90 days. Even the 160k 3bed houses have 5k$ price cuts. Here it comes!

NuttBoxer says

If the economy crashes tomorrow, wiping out all assets that derive their value solely from inflated federal dollars, what will you have left?

bawahahahah, yeah! Hey Crash Bro's, guess what? the economy is going to crash and houses and stocks will go to zero! ZERO !!! ZEEEROOO!!!

You will have nothing left! ZEERRRO!!

Zak says

Then its either war with China to distract us from the shit bomb, or again, the people actually say fuck you government, and basically throw everyone out.

I am thinking there may be a Republican win in November 2022 with them taking over the House, at least. That is one way for the public to think there is a response to their pleas or desires just like in November 1994.

.

DooDahMan says

On a side note you do not have to attempt to show anyone anything - just show up here, not be a "regular" and the conspiracies about you take off

So true!

Zak says

Even the 160k 3bed houses have 5k$ price cuts. Here it comes!

A reduction in ASKING price means jack shiat. Remember, we have/had the hottest market on record.....lowest days on the market, lowest inventory. Now we finally go into a cool-off phase and people get excited about a reduction in asking price.

Remember the taper tantrum in 2018 when the FED raised rates? Same thing, demand went down, sales went down, reduction in asking prices. everyone came out telling us about the huuuuuge upcoming crash. You know why those people that called for the biggie dont remember 2018? It goes without saying.

NuttBoxer says

Retirement is a concept made up by bankers trying to bilk people out of the best years of their life. I've always made a habit of enjoying life now, with no plans on retiring, just transitioning to work I enjoy more.

This is a very healthy attitude. Is it really work if you enjoy it so much? That's always been the question I've asked myself.