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Housing bubble or not, the real estate market is in trouble

By Patrick following x   2018 Apr 19, 7:04pm 2,074 views   27 comments   watch   sfw   quote     share    


https://www.nationalmortgagenews.com/news/housing-bubble-or-not-the-real-estate-market-is-in-trouble

Home prices are still going to decline, and mortgage defaults are likely to rise.

It's simply the nature of a cyclical market.

"It's interesting to watch the dynamics of the market. What we see is prices rise, sales activity slows down, prices weaken and then sales pick back up," said Carrington Mortgage Holdings Executive Vice President Rick Sharga. "It's the way a housing market is supposed to behave in a normal environment. But it's been so long since we've seen a normal environment that we forget how it's supposed to work."

While it's true that certain housing markets are overheated, "it doesn't mean necessarily that tomorrow or next week or next month or even next year prices are going to crash. But it's prudent being a little more cautious about investments in those metro areas," said CoreLogic Chief Economist Frank Nothaft.
1   Strategist   ignore (3)   2018 Apr 19, 7:41pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Patrick says
https://www.nationalmortgagenews.com/news/housing-bubble-or-not-the-real-estate-market-is-in-trouble

Home prices are still going to decline, and mortgage defaults are likely to rise.

It's simply the nature of a cyclical market.

"It's interesting to watch the dynamics of the market. What we see is prices rise, sales activity slows down, prices weaken and then sales pick back up," said Carrington Mortgage Holdings Executive Vice President Rick Sharga. "It's the way a housing market is supposed to behave in a normal environment. But it's been so long since we've seen a normal environment that we forget how it's supposed to work."


It's still not a normal market. There are many variables that affect the housing market....Interest rates, unemployment rates, incomes, and what not. The primary variable that stands out the most and dwarfs all other variables is the severe shortage of homes. There is no way home prices can decline in a severe shortage that we have along with rising employment and incomes that have started to increase. If anything, home prices will rise at an even higher rate.
I have been stating this for several years, but very few get it. I just can't understand why very few get it.
2   Patrick   ignore (0)   2018 Apr 19, 7:51pm   ↑ like (1)   ↓ dislike (0)   quote   flag        

I would say the availability of cheap mortgages is even more important than the supply of houses for sale.

And I'd also say that mortgages are going to get progressively more expensive over the next few years.
3   APOCALYPSEFUCKisShostikovitch   ignore (34)   2018 Apr 19, 10:39pm   ↑ like (2)   ↓ dislike (0)   quote   flag        

Housing is grossly underpriced

Everyone knows that

Some people can still afford to live indoors

Plenty of value being left on the table
4   bob2356   ignore (3)   2018 Apr 20, 5:39am   ↑ like (1)   ↓ dislike (0)   quote   flag        

Patrick says
I would say the availability of cheap mortgages is even more important than the supply of houses for sale.

And I'd also say that mortgages are going to get progressively more expensive over the next few years.


Something like a third of house sales are still cash only. Most of that investors. If anything that will increase as all the tax cut money flows out to people looking for a place to invest it. Not to mention record profits and dividends in addition to the tax cut money all searching for a place to go. I wouidn't short housing for the next couple years. There is always the possibility of a black swan event of course. .
5   anotheraccount   ignore (1)   2018 Apr 20, 7:18am   ↑ like (0)   ↓ dislike (1)   quote   flag        

bob2356 says
I wouidn't short housing for the next couple years. There is always the possibility of a black swan event of course. .


The black swan is that the tax cut will cost a lot more than projected and after 2018 mid terms someone will have to increase corporate tax rates. Or I guess the Fed can always buy all the bonds resulting from the deficit and lose whatever is left of its credibility.
6   P N Dr Lo R   ignore (0)   2018 Apr 20, 8:35am   ↑ like (0)   ↓ dislike (0)   quote   flag        

bob2356 says
If anything that will increase as all the tax cut money flows out to people looking for a place to invest it.
Another by-product of artificially low interest rates.
7   Goran_K   ignore (1)   2018 Apr 20, 8:38am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Patrick, did you ever buy? I remember a year ago you were thinking of jumping into the market.
8   Patrick   ignore (0)   2018 Apr 20, 9:34am   ↑ like (2)   ↓ dislike (0)   quote   flag        

No, still looking passively, but can't find anything that's a better deal than renting the equivalent in the Bay Area. Also I'm getting a bit nervous/hopeful that prices are actually going to be falling around here.

I'm not in a rush and have no timeline. Certainly glad I held on to all my stocks and got that 34% gain in 2017.
9   exfatguy   ignore (0)   2018 Apr 20, 9:37am   ↑ like (0)   ↓ dislike (0)   quote   flag        

I've long given up on fundamentals and sanity.

The bottom line is that bay area home prices are never going to go down, and, in fact, will double each year from here on out.
10   dublin hillz   ignore (0)   2018 Apr 20, 9:41am   ↑ like (2)   ↓ dislike (0)   quote   flag        

APOCALYPSEFUCKisShostikovitch says
Housing is grossly underpriced

Everyone knows that

Some people can still afford to live indoors

Plenty of value being left on the table


Living in a tent is living indoors....so is squatting in an office building conference room hiding from corporate security...
11   Heraclitusstudent   ignore (2)   2018 May 3, 3:07pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

I don't think prices will fall or if they do, not by much. Too many people waiting for an entry point, and the under-construction continues which means over time prices will drift higher.

It will take a huge political change to get us out of this mode. As the consequences of massively overpriced housing are rippling through the economy, we will see more and more signs of that change. But we're just at the beginning. We need a massive exodus of businesses and a stalling economy before attitudes start to change.
12   BayArea   ignore (0)   2018 May 3, 8:44pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Patrick says
No, still looking passively, but can't find anything that's a better deal than renting the equivalent in the Bay Area. Also I'm getting a bit nervous/hopeful that prices are actually going to be falling around here.

I'm not in a rush and have no timeline. Certainly glad I held on to all my stocks and got that 34% gain in 2017


Same boat here Patrick.

As has been covered many many times on this forum, rent:buy price ratios are smaller in affluent areas. It’s much cheaper for me to rent in affluent (Belmont/San Carlos) than to buy here.

I also expect something to give in the near term. When it does, I’ll buy.
13   Strategist   ignore (3)   2018 May 3, 9:37pm   ↑ like (1)   ↓ dislike (0)   quote   flag        

BayArea says
Patrick says
No, still looking passively, but can't find anything that's a better deal than renting the equivalent in the Bay Area. Also I'm getting a bit nervous/hopeful that prices are actually going to be falling around here.

I'm not in a rush and have no timeline. Certainly glad I held on to all my stocks and got that 34% gain in 2017


Same boat here Patrick.

As has been covered many many times on this forum, rent:buy price ratios are smaller in affluent areas. It’s much cheaper for me to rent in affluent (Belmont/San Carlos) than to buy here.


Guys, the rent vs buy analysis will always show higher appreciating areas to be more worthy of renting, and non or low appreciating areas to be more worthy of buying. You don't even need a calculator to figure that out. The secret lies in factoring appreciation rates. Go back 20 30 40 50 years, and you will see the the highest returns are in areas where your rent calculator said it's not worth buying.
Use a 10% or 20% down payment for a home and your returns will jump manyfold.
14   SFace   ignore (0)   2018 May 3, 9:38pm   ↑ like (3)   ↓ dislike (0)   quote   flag        

br>I'm not in a rush and have no timeline. Certainly glad I held on to all my stocks and got that 34% gain in 2017.

most homeowners got 34% gain in stocks and home appreciations of several hundred K in 2017. The idea that renters kill it in stocks is pure fantasy. Homeowners own all the stocks too. You are an exception.
15   SFace   ignore (0)   2018 May 3, 9:42pm   ↑ like (1)   ↓ dislike (0)   quote   flag        

" the rent vs buy analysis will always show higher appreciating areas to be more worthy of renting, and non or low appreciating areas to be more worthy of buying. You don't even need a calculator to figure that out. The secret lies i..."

I call it the Ghetto calculator. Because the result is buy in the Ghetto and not buy in "prime"... Which is complete opposite of reality.
16   ThreeBays   ignore (0)   2018 May 3, 10:36pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Behold my super predictive powers: "It's simply the nature of a cyclical market"

Broken clock or not, it's still right, twice a day!
17   mell   ignore (2)   2018 May 3, 10:59pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

SFace says
br>I'm not in a rush and have no timeline. Certainly glad I held on to all my stocks and got that 34% gain in 2017.

most homeowners got 34% gain in stocks and home appreciations of several hundred K in 2017. The idea that renters kill it in stocks is pure fantasy. Homeowners own all the stocks too. You are an exception.


He's obviously comparing to an equally flnancially flush renter putting an equal amount of money into stocks using equal leverage, then his thesis holds true. In practice I'd agree that most renters likely do not have much money in stocks to begin with. Also housing gives you much more leverage, so you can make bigger gains with less money down. But if you would invest equal money with equal leverage his thesis holds true, even though it may not model the reality of typical homeowners and renters.
18   bob2356   ignore (3)   2018 May 4, 4:19am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Strategist says

Guys, the rent vs buy analysis will always show higher appreciating areas to be more worthy of renting, and non or low appreciating areas to be more worthy of buying. You don't even need a calculator to figure that out. The secret lies in factoring appreciation rates. Go back 20 30 40 50 years, and you will see the the highest returns are in areas where your rent calculator said it's not worth buying


What percentage of people live 20,30,40,50 years in the same house in the fast appreciating area's? Lot's of transient in area's like that. So luck plays a big part depending on when you buy and when you need to sell. You only get the appreciation when you leave the area. and move to an area that hasn't equally appreciated. Selling a house and buying another equally appreciated house is zero gain.

That being said I agree most renters don't have the fiscal discipline to put away the difference between renting and owning. They are better off with an enforced savings plan called a mortgage. For the first 6-8 years or so you are renting the money with minimal building of equity. So if the house doesn't appreciate more than the buying and selling costs before you move on it's a wash anyway.

Bottom line, rent to own calculators are useless since they don't know your individual situation. Appreciation is a myth unless you know you will be selling the house to move to a cheap area that didn't appreciate and never ever going to move back anywhere high demand again.
19   FNWGMOBDVZXDNW   ignore (2)   2018 May 4, 6:40am   ↑ like (0)   ↓ dislike (0)   quote   flag        

bob2356 says
Appreciation is a myth unless you know you will be selling the house to move to a cheap area that didn't appreciate and never ever going to move back anywhere high demand again.

This part isn't true. Appreciation only a myth if you never gain enough equity to pay off more than the selling fees, as you wrote.
If you buy a house, and sell 10 yrs later after 40% appreciation, you are still up 33% or so after paying 5% selling fees. Even though you may plow that appreciation into a down payment on another house, you are that much better off than someone who rented, whether or not the renter buys or continues to rent. If the renter had lower monthly payments, that has to be factored into a comparison of course, but to say that appreciation is a myth isn't correct. If you do own, at the end of your life, you can reverse mortgage if you absolutely need to, and if not, your kids get to inherit a house. Appreciation matters in those events as well.
20   HEYYOU   ignore (20)   2018 May 4, 7:04am   ↑ like (0)   ↓ dislike (0)   quote   flag        

APOCALYPSEFUCKisShostikovitch says
Housing is grossly underpriced


Overpayers will fix that.
.....
Buying a house in a high sales area reminds me of an auction,bid higher.
Lesson for your next auction,when someone bids $100,00,you bid $95.00.
Next bidder bids $90.00.

WTF are you trying to do,make everybody rich.
I know! I know! You can't do without regardless of the cost.

This is the attitude one may get when they become an old fuck.
21   bob2356   ignore (3)   2018 May 4, 7:31am   ↑ like (0)   ↓ dislike (0)   quote   flag        

FNWGMOBDVZXDNW says
If the renter had lower monthly payments, that has to be factored into a comparison of course, but to say that appreciation is a myth isn't correct. If you do own, at the end of your life, you can reverse mortgage if you absolutely need to, and if not, your kids get to inherit a house. Appreciation matters in those events as well.


Key words, in those events. Lot's of assumptions there. Big assumptions like 40% appreciation in 10 years. Maybe in select markets, it's not the norm in the much of the country. In addition to closing costs (more than 5%, you need to include buying and selling costs) you also have to net out interest paid, taxes, maintenance, insurance, water, sewer, garbage, hoa fees, etc., etc. against what someone paid in rent.

I did say most people are better off buying because they won't put the rental saving into investments. For the people that can save the roi of investment of down payment and ongoing savings can outpace appreciation, key word can. Houses appreciate in a straight line. Investments compound. It all comes down to the person's situation and a big dose of luck. Most people aren't going to sit down and pencil it out for their situation, they will just buy into the propaganda du jour.
22   LeonDurham   ignore (0)   2018 May 4, 7:36am   ↑ like (0)   ↓ dislike (0)   quote   flag        

bob2356 says
I did say most people are better off buying because they won't put the rental saving into investments. For the people that can save the roi of investment of down payment and ongoing savings can outpace appreciation, key word can. Houses appreciate in a straight line. Investments compound. It all comes down to the person's situation and a big dose of luck. Most people aren't going to sit down and pencil it out for their situation, they will just buy into the propaganda du jour.


I think the factor that most miss in that calculation is mortgage payments are (save for property tax) fixed, while rent rises. Over longer time periods, that makes a large impact and is a big reason why buying tends to be better if one plans to be in the same house for a decent amount of time.
23   FNWGMOBDVZXDNW   ignore (2)   2018 May 4, 9:02am   ↑ like (0)   ↓ dislike (0)   quote   flag        

bob2356 says
Big assumptions like 40% appreciation in 10 years.

That's 3.5% appreciation, which is large, but not crazy for a hypothetical. If I used 2.5%, and said 30%, the same argument applies. Obviously, there are expenses to be accounted for, but the appreciation is real and directly benefits the owner whenever they choose to take advantage of it.
24   Strategist   ignore (3)   2018 May 4, 10:20am   ↑ like (0)   ↓ dislike (0)   quote   flag        

FNWGMOBDVZXDNW says
bob2356 says
Big assumptions like 40% appreciation in 10 years.

That's 3.5% appreciation, which is large, but not crazy for a hypothetical. If I used 2.5%, and said 30%, the same argument applies. Obviously, there are expenses to be accounted for, but the appreciation is real and directly benefits the owner whenever they choose to take advantage of it.


Even 30% appreciation after 10 years is a tremendous return on a 10% down payment.
25   bob2356   ignore (3)   2018 May 4, 10:21am   ↑ like (0)   ↓ dislike (0)   quote   flag        

FNWGMOBDVZXDNW says
bob2356 says
Big assumptions like 40% appreciation in 10 years.

That's 3.5% appreciation, which is large, but not crazy for a hypothetical. If I used 2.5%, and said 30%, the same argument applies. Obviously, there are expenses to be accounted for, but the appreciation is real and directly benefits the owner whenever they choose to take advantage of it.


Investment income is real and comes in every month to be further reinvested therefore compounding. Appreciation can only be used when the house is sold. Unless you want to heloc and pay interest. Expenses are real and come directly off of the appreciation.

LeonDurham says

I think the factor that most miss in that calculation is mortgage payments are (save for property tax) fixed, while rent rises. Over longer time periods, that makes a large impact and is a big reason why buying tends to be better if one plans to be in the same house for a decent amount of time.


Taxes, insurance, water, sewer, maintenance, hoa fees, closing costs all rise. What is a decent amount of time? Is it the same in LA as fargo nd or detroit?.

It's like a frigging cult. Buy house, buy house, buy house. Whether buying or renting is better depends on a lot of variables. and luck. People who bought in vegas in 2007 are still under water.
26   FNWGMOBDVZXDNW   ignore (2)   2018 May 4, 10:53am   ↑ like (0)   ↓ dislike (0)   quote   flag        

bob2356 says
Investment income is real and comes in every month to be further reinvested therefore compounding. Appreciation can only be used when the house is sold. Unless you want to heloc and pay interest. Expenses are real and come directly off of the appreciation.

On a personal property, the house will always be sold. Maybe it is on death, which I pointed out, and the benefit goes to the heirs. Maybe, the owner eventually is in dire straights, and they borrow against it or just sell it. Either way, the appreciation is there, and can be tapped, just as a stock can be sold to tap the appreciation. A house is less liquid in terms of a sale (takes two months instead of a day), but it can be tapped immediately by loan. If an owner sells the house, and gets the equity out, they have to rent. But the renter has to rent to. So all other things accounted for (in the buy/rent calculator), the equity is real.
If running a business, the equity should occasionally be tapped anyway and used to invest in more property. Otherwise, one doesn't utilize the appropriate leverage.

When I say appropriate leverage, I mean that housing is not as volatile as stocks. Higher leverage is typically used to raise returns and the risk is generally not higher than stocks. I say generally, because it depends on the amount of leverage and the state of the market. But, I think it's generally accepted that to accept equal risk, one can use more leverage in real estate than stocks.
27   LeonDurham   ignore (0)   2018 May 4, 11:52am   ↑ like (0)   ↓ dislike (0)   quote   flag        

bob2356 says

Taxes, insurance, water, sewer, maintenance, hoa fees, closing costs all rise. What is a decent amount of time? Is it the same in LA as fargo nd or detroit?.


I'm just looking at monthly costs of owning vs. renting. Taxes I agree with and mentioned already. Insurance does rise but we're talking pretty small $$ there. Maintenance agree it will rise with inflation. I'm thinking a decent amount of time is 7+ years regardless of where you live. I don't care about appreciation. Just talking about the inflation protection.


bob2356 says
It's like a frigging cult. Buy house, buy house, buy house. Whether buying or renting is better depends on a lot of variables. and luck. People who bought in vegas in 2007 are still under water.


Huh? Just pointing out that when doing the evaluation one needs to consider the inflation advantage of owning.




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