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Six Housing Markets At Risk Of Another Correction

By Patrick following x   2018 Apr 17, 3:20pm 2,239 views   20 comments   watch   sfw   quote     share    

https://www.forbes.com/sites/panosmourdoukoutas/2018/04/16/six-housing-markets-at-risk-of-another-correction/

The soaring housing markets of the United States, Sweden, Canada, Norway, Australia, and the United Kingdom are at risk of another correction that could turn into a crash in some of these markets.

That’s according to recently published 2018 Risk Maps: AON’s Guide to Political Risk, Terrorism & political violence, which cites the usual factor behind every housing market correction: monetary tightening that raise the cost of financing (interest rates) of household and mortgage debt.
1   Sunnyvale94087   ignore (0)   2018 Apr 17, 3:31pm   ↑ like (1)   ↓ dislike (0)   quote   flag        

From the linked article, this must be the new math...
"San Francisco County Median home price: $1,087,599 ... Pct. homes values $1,000,000+: 35.9%"

Yes, that says "median" not "mean."
2   Onvacation   ignore (4)   2018 Apr 17, 4:09pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

I was looking at zillow (I know) a while ago and randomly clicking on million dollar plus shacks for sale in the city (SF). I was surprised to see "zestimate home values" with 30 day changes in the +30k/month range. Now I see some of the 30 day estimates changing by as much as a couple hundred thousand negative.

Zillow (I know) says that there are 807 houses for sale, 209 in preforeclosure, and 3068 for rent in the upper peninsula north of Daly City.

Anecdotal but it seems like more and more properties are going on the market.

What's the analysis of the board's RE experts?
3   Patrick   ignore (1)   2018 Apr 17, 4:21pm   ↑ like (3)   ↓ dislike (0)   quote   flag        

The main problem with actually knowing how the real estate market is doing is that almost all of the statistics are controlled by used house salesmen, also known as realtors. They can and do manipulate the numbers, for example, by simply excluding all lower-priced properties from their aggregates as "anomalies". Or by erasing houses from the MLS when they fail to sell so that they can come on the market again at a lower price without tipping off buyers about the first failure to sell.

Zillow is just more of the same systemic corruption preying on young families, since their business is selling sheep to wolves (selling buyers to realtors).

Advertised prices are basically meaningless in California, always set much lower than what the seller would accept, for two reasons:

1. so that the buyer is at an information disadvantage and does not know what an acceptable price would really be (encourages blind bidding)
2. so that the realtors can always claim victory and a "hot market" even if the seller got far below the expected price (it will still be above the fake "asking" price)

I really wish I had an easily accessible source of non-manipulated data.
4   Onvacation   ignore (4)   2018 Apr 17, 4:22pm   ↑ like (1)   ↓ dislike (0)   quote   flag        

More zillow:
I randomly picked a 1.8 million dollar home. It was a nicely painted 3/2 on a 1750 sq ft lot sharing a wall with the neighbor. The mortgage estimate was 10,099/month. Comparable rentals are in the range of 3 to 6k a month.
5   Onvacation   ignore (4)   2018 Apr 17, 4:22pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Patrick says
Zillow

I know. But it's fun to play with.
6   Patrick   ignore (1)   2018 Apr 17, 4:23pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Onvacation says
The mortgage estimate was 10,099/month. Comparable rentals are in the range of 3 to 6k a month.



Excellent example of some place no one should ever buy at the asking price.
7   mell   ignore (1)   2018 Apr 17, 4:42pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Onvacation says
I was looking at zillow (I know) a while ago and randomly clicking on million dollar plus shacks for sale in the city (SF). I was surprised to see "zestimate home values" with 30 day changes in the +30k/month range. Now I see some of the 30 day estimates changing by as much as a couple hundred thousand negative.

Zillow (I know) says that there are 807 houses for sale, 209 in preforeclosure, and 3068 for rent in the upper peninsula north of Daly City.

Anecdotal but it seems like more and more properties are going on the market.

What's the analysis of the board's RE experts?


That is my impression as well. Almost drove over a couple of open house signs last weekend. But keep in mind the SF bay area housing market inventory has been so low that it will take a bit to make it to the news, but reductions are coming in, also in surrounding counties, and houses are staying longer on the market (of course also up from being scooped up within days).
8   mell   ignore (1)   2018 Apr 17, 4:45pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

I also see more often dramatic differences in price per sqft, I saw a recently built beautiful upper-middle-class / upper-class house in Sonoma for less than $500/sqft, while most are closer to the prices in SF, $700-$1000 per sqft. Let's see if this trend continues.
9   lostand confused   ignore (0)   2018 Apr 17, 4:51pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

preforeclosures in the bay area-that is interesting?
10   Onvacation   ignore (4)   2018 Apr 17, 5:37pm   ↑ like (1)   ↓ dislike (0)   quote   flag        

lostand confused says
preforeclosures in the bay area-that is interesting?


Zillows preforeclosures have been decreasing over the last few years. At one point some bay area cities had as many as 8 preforeclosures for each for sale house. Currently there are 102k homes for sale in California and 27k in preforeclosure according to zillow (I know).

Does not sound healthy.
11   HowdyThere   ignore (0)   2018 Apr 17, 7:26pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

I'm in a tough spot. I'm moving to a southern Ontario area that is being influenced by Toronto's insane run up. Many of the houses in the area have been clearly flipped, and that turns me off in a major way. Might consider low balling them. I'll give up my buying intentions pretty quickly and investigate renting options.
12   mell   ignore (1)   2018 Apr 17, 7:43pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

HowdyThere says
I'm in a tough spot. I'm moving to a southern Ontario area that is being influenced by Toronto's insane run up. Many of the houses in the area have been clearly flipped, and that turns me off in a major way. Might consider low balling them. I'll give up my buying intentions pretty quickly and investigate renting options.


I think the east is more vulnerable to corrections than the west so low-balling may be a good idea here. The west coast is flooded with Chinese (and other Asians) buying up property to move their money relatively close to home but of reach of their governments.
13   Sunnyvale94087   ignore (0)   2018 Apr 17, 7:55pm   ↑ like (2)   ↓ dislike (0)   quote   flag        

Onvacation says
More zillow:
I randomly picked a 1.8 million dollar home. It was a nicely painted 3/2 on a 1750 sq ft lot sharing a wall with the neighbor. The mortgage estimate was 10,099/month. Comparable rentals are in the range of 3 to 6k a month.


I'm guessing you meant it was a 1750 sq ft house on a 3k to 5k lot or something like that. The cost of buying verses the (relatively low) cost of renting is sometimes hard to believe. Anyway, that's not even as bad as my place! My Zestimates are $2.1M purchase verses $4k/month rent.

Paying even 3.5% interest on my shack would run you well more than the cost or rent! Even with the home mortgage tax deduction (only on the first $750k of mortgage) you would be more than $4k/month. And that's just paying the INTEREST on the loan; and you still need that $420k down payment. And you still need $2k/month (no longer deductible) property tax. LOL. Actually, my property tax has basically never been deductible: if you make enough to pay the mortgage, you'll be very deep into AMT and thus unable to deduct your property taxes.

So how do we see a $2M+ house rent out for $4k/month? Maybe an original owner who bought the place for $30k in the 1960s. With Prop 13 benefits, they only pay $100/month in property taxes. If they sell, they'll pay capital gains on nearly ALL of the property value.

How's the math work then? They could sell the $2M house and pay $120k to the real estate cartel (plus some other expenses). Then they pay $700k in capital gains tax. (fed + CA) They would wind up with $1.2M in money in their pocket. If you can rent it out for $4k/month and only have expenses of $0.5k/month (unlikely on a 50 year old house; unlikely if you pay a manager and handyman because you're 70 years old and have fled the state anyway) you're looking at profit of $42k/year verses having $1.2M in your pocket. That gives you a return of 3.5% on your $1.2M. But if you assume that the rental property value increases at the rate of inflation you are pocketing an additional 2% in appreciation by being a landlord.

In summary, people that have owned a property for 30+ years suffer the worst capital gains taxes if they sell and also have the most advantageous Prop 13 benefit if they rent it out. So, for those people, it could maybe possibly be worthwhile to hold the house and rent it out. People without the worst capital gains problems and without the best Prop 13 benefits would be insane to rent out their house unless they are speculating on prices going higher or they are assuming they'll be back in the bay area in a few years and can move back in.
14   APOCALYPSEFUCKisShostikovitch   ignore (36)   2018 Apr 17, 9:34pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

If you're not already firing and laying in supplies of yams and belt - fed ammo, you're dead.
15   Onvacation   ignore (4)   2018 Apr 17, 9:51pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

pwagner says


I'm guessing you meant it was a 1750 sq ft house on a 3k to 5k lot

135 Holladay ave 94110.
2336 sq ft house on a 1751 lot $1,799,000
This place is so close to the freeway that a car could fly into the roof.

pwagner says
So how do we see a $2M+ house rent out for $4k/month? Maybe an original owner who bought the place for $30k in the 1960s. With Prop 13 benefits, they only pay $100/month in property taxes. If they sell, they'll pay capital gains on nearly ALL of the property value.

Your analysis sounds reasonable.
What should be done about these rentseekers who neglect their rentals allowing urban blight knowing that the land has way more value than the roach infested shack that sits on it?
16   happyowner   ignore (0)   2018 Apr 17, 10:16pm   ↑ like (1)   ↓ dislike (0)   quote   flag        

Do you know that many of the million dollar homes in SF bay area are being bought in CASH? lol. it's like buying a car. Life is short, you do what makes you happy. Having your own house to play with and enjoy has many psychological benefits. I have several properties - I grow fruit trees, plant vegetables, have garage renovated to make it easier to work on my cars ... things you can never do if you rent. Even if you are paying mortgage, after 15 to 30 years, you own the house. If you rent, after 15 to 30 years, you're still paying rent (probably higher than what you started). If you can afford to buy a home, there is no better investment - and I'm not talking financial - I'm talking about living your life and doing what you want to do. Not being a slave to your landlord until you die.
17   ThreeBays   ignore (0)   2018 Apr 17, 11:08pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

pwagner says
Onvacation says
How's the math work then? They could sell the $2M house and pay $120k to the real estate cartel (plus some other expenses). Then they pay $700k in capital gains tax. (fed + CA) They would wind up with $1.2M in money in their pocket. If you can rent it out for $4k/month and only have expenses of $0.5k/month (unlikely on a 50 year old house; unlikely if you pay a manager and handyman because you're 70 years old and have fled the state anyway) you're looking at profit of $42k/year verses having $1.2M in your pocket. That gives you a return of 3.5% on your $1.2M. But if you assume that the rental property value increases at the rate of inflation you are pocketing an additional 2% in appreciation by being a landlord.


Selling has high costs, triggers taxes, and loses Prop 13 advantage for the landlord's estate.

There's the 3rd scenario where the old-time landlord has their cake and eats it too. Refinance and get near $1M in your pocket (almost as much as selling) which can be invested for X%, the renter pays for the mortgage and maintenance paying Y% to principal, you get X% inflation (tax deferred gains), your estate keeps the low property tax base and a 100% step-up in the home basis upon your death.

Because the taxes are a huge opportunity cost the old-time landlord has plenty of reason to keep renting the place at measly 2.4% of their home's value rather than to sell at least until they die.
18   bob2356   ignore (3)   2018 Apr 18, 7:22am   ↑ like (0)   ↓ dislike (0)   quote   flag        

"worst capital gains taxes if they sell and also have the most advantageous Prop 13 benefit if they rent it out. So, for those people, it could maybe possibly be worthwhile to hold the house and rent it out."

Hold on at maybe (you left out a lot of expenses) 5.5% ROI including appreciation? I can think of a dozen markets where you can get in the 10% net range easy. Not very sexy markets, but solid and dependable.

ThreeBays says
There's the 3rd scenario where the old-time landlord has their cake and eats it too. Refinance and get near $1M in your pocket (almost as much as selling) which can be invested for X%, the renter pays for the mortgage and maintenance paying Y% to principal, you get X% inflation (tax deferred gains), your estate keeps the low property tax base and a 100% step-up in the home basis upon your death.


The numbers don't work at 2m for 4000 a month . It would be 4500 mortgage alone IF you could get sub 5% on a refi. Then there are taxes, insurance, maintenance, empty time, etc, etc.. You would end up throwing 2k a month in. It works if the step up when you die is the only consideration. I doubt many people have that big a step up. If the step up is a million your heirs would only save 200k on the sale. You could make 200k on a million in investments in 4 years at only 5%. After that it continues to roll in. vs a one time tax savings at some unknown time in the future.
19   Malcolm   ignore (1)   2018 Apr 18, 7:59am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Near me, lots of horse properties for sale and selling at a discount. Like I have said before, large homes sitting or going for $250 a foot, smaller home sales slowing, still getting $400 a sq foot, but they have to be super nice or they don’t move.
20   ThreeBays   ignore (0)   2018 Apr 20, 10:45pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

bob2356 says
"worst capital gains taxes if they sell and also have the most advantageous Prop 13 benefit if they rent it out. So, for those people, it could maybe possibly be worthwhile to hold the house and rent it out."

Hold on at maybe (you left out a lot of expenses) 5.5% ROI including appreciation? I can think of a dozen markets where you can get in the 10% net range easy. Not very sexy markets, but solid and dependable.

ThreeBays says
There's the 3rd scenario where the old-time landlord has their cake and eats it too. Refinance and get near $1M in your pocket (almost as much as selling) which can be invested for X%, the renter pays for the mortgage and maintenance paying Y% to principal, you get X% inflation (tax deferred gains), your estate keeps the low property tax base and a 100% step-up in the home basis upon your death.


The numbers don't work at 2m for 4000 a month . It would b...


$4k a month for $2M home is a bit of an extreme example. I see $1.5M places renting for near $5k.


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