patrick.net

@WillyWanker I think a lot depends on interest rates.

Patrick says

@WillyWanker I think a lot depends on interest rates.

It will be interesting to see if they raise rates. But, many other forces are at play. I'm now watching on the sidelines, as I am now living between homes in Spain and Andorra.

I think it depends a lot in interest rates AND the eviction / foreclosure moratoriums. Once all the deadbeats get thrown out of their apartments, the people who are thinking about selling their house while they still have equity in it are going to sell.

zzyzzx says

I think it depends a lot in interest rates AND the eviction / foreclosure moratoriums.

Also lack of development over the last decade, although I understand new home builders are going crazy lately.

Zillow says double digit growth in 2022

Buy now or be priced out forever

… and as long as interest rates are at 3-4%, no we aren’t heading to any declining home prices and certainly no crash.

Stock market took a turn recently, 40yr inflation high, coming out of a global pandemic… how much do you think the Fed will raise those rates… probably not much. They know damn well they will need to be careful with this.

Secondarily, stonks. Wealth effect, yadda, yadda.

I think inflation is countering crash for the time being.

WillyWanker says

I have friends who have just put their homes on the market. And others, who should know better, who are awaiting real estate lotto to be 'able to purchase' homes in communities in Arizona and Florida. I don't think I've heard people speak about waiting in line to buy up a tract house in a gated community since 2006. What gives?

Obviously location is a huge factor. Here in IL people have been leaving the state. Builders here for the most part aren't building subdivisions. Even with the migration out there are more people able to purchase as Millennials start families. If there's going to be a crash somewhere it's going to be because of demographics and inventory. And the Millennials that don't/can't buy will continue to live at Mom and Dad's.

The last crash was because of shit lending standards. I got a $315k loan at 22 for a 2 flat in Chicago. That's not happening now as far as I can tell. I could handle that now easily financially, but if I had the same income as back then no way in hell would I get that loan.

There are a few areas I'd worry about though with stagnating prices or some declines. Denver, CO is one. Sorry PorkChop, but Nashville, TN is of concern. Idaho (not sure of specific towns/cities). Bozeman, MT area is retarded right now. The "rural" town/cities with a lot of blue state transplants have prices that are not sustainable. They have vast amounts of land around them and at some point the people will stop coming and they'll over build.

As Patrick points out, you're buying a payment basically. Fed will throttle that with interest rates, but it's more controlled and I don't think would result in a crash. I'm not a bull on housing though. Markets are hitting a ceiling in areas. Just doesn't mean there will be a crash like last time.

Inflation of goods will for sure cause a slow down as well unless incomes tick up. 2007/08 was a once in a lifetime event. Great Depression style. I could be wrong, but I don't see a 20% plus crash coming anywhere outside of hipster areas where they over built and there's massive amounts of land.

WillyWanker says

I remember this forum as it was one of my favorites in the aughts because I, along with most people who followed Patrick Killelea, believed the frothy real estate market was ready to burst.

I miss the good ol' days when all we had to complain about was over priced crap shacks.

FJB says

WillyWanker says

I remember this forum as it was one of my favorites in the aughts because I, along with most people who followed Patrick Killelea, believed the frothy real estate market was ready to burst.

I miss the good ol' days when all we had to complain about was over priced crap shacks.

I also enjoyed reading all the perma-bear content on here then and now. The regret runs deep I’m sure.

I hope so, I would love nothing more than to see every RE rental investor company or small time scumlord, lose their ass and everything they own. Gambling that they could squeeze $3,000 out of America's struggling families for rent on a shit shack on the other side of the tracks.

If I were King around here, I would tax every SF House a person owns over two homes. And I would tax every SF house a corporation owns as a Federal property tax, then I would use that money to undermine their empires to crash the SF housing market to make it affordable again.

Starting with 10 huge Urban sprawls built through out America that would boom so much work, those hot bed RE areas, would clear out, with no buyers, they calve in half if not quarters. This shit is not natural and is only happening due to America's policy to stop producing SF housing, for the sole purpose of benefiting the Scumlords and Flippers buying them all up.

Real estate isn’t going to crash for one simple reason: the major hedge funds are heavily invested in real estate and will buy more if it goes “on sale.”
It doesn’t matter if people can afford to buy houses or not. Blackrock and Vanguard can afford to buy shacks and they will, just to keep prices stable.

Shaman says

Real estate isn’t going to crash for one simple reason: the major hedge funds are heavily invested in real estate and will buy more if it goes “on sale.”
It doesn’t matter if people can afford to buy houses or not. Blackrock and Vanguard can afford to buy shacks and they will, just to keep prices stable.

Agreed. They own now roughly 1/3 of properties and are turning the US into a renter nation on their terms. Let's go brandon!

WillyWanker says

Patrick says

@WillyWanker I think a lot depends on interest rates.

It will be interesting to see if they raise rates. But, many other forces are at play. I'm now watching on the sidelines, as I am now living between homes in Spain and Andorra.

You're worried about affording a 3rd home?

What's the one universal we all knew in '06 that we know now? Nothing goes up forever.

RC2006 says

I think inflation is countering crash for the time being.

What does that mean?

See Weimer Germany. You can postpone an economic crash by printing, but the end result is a more severe crash. See also Rothbard's boom/bust cycle.

BayArea says

The regret runs deep I’m sure.

Lol, what? I retired 10 years early by renting.

WillyWanker says

I am now living between homes in Spain and Andorra.

That sounds interesting. How are prices and rents compared to here? Do you own or rent there?

Do you have Spanish or other EU citizenship?

Real estate will not crash, but it will slow down.

As mentioned above, REITs are buying up places, which may continue.

The free government money is slowing down finally.
The evictions and foreclosures will pick up, although slowly.

The inventory will increase, slowly.
Landlords who found out about the joys of having deadbeat renters will sell some properties.

Fiat real estate prices not offsetting the fiat Hummer losses in the main portfolio. Pretty soon, hookers and cocaine will become too expensive.

Maybe I should buy a Coeur d'Alene house or two remotely while the fiat money is still seen as currency.

FJB says

WillyWanker says

I remember this forum as it was one of my favorites in the aughts because I, along with most people who followed Patrick Killelea, believed the frothy real estate market was ready to burst.

I miss the good ol' days when all we had to complain about was over priced crap shacks.

Same here. Who would have thought the world would be in this shit-storm when we were told that #FJB was when the 'grown-ups' would be taking control of things. I talk to my family in California, liberals, most of them, and they blame inflation and gas prices on PUTIN! When gas gets to $8 a gallon will they ever wonder if they were wrong?

I wouldn't be buying any real estate in any of the over-heated markets.

I don't know. Most of the wealthy people I know think it's about to tank.

My brother in law who's made millions in real estate says to sell now and buy back in a couple years.

Who knows. The only thing supporting the insanity is the low rates and inflation.

My Future-ometer is my only clock that is never right, not even twice a day.

Between the real estate collapse, the loss of many Hummers from the portfolio, and the pending inflation with currency reset, it's probably time to take that Walmart greeter's vest out of mothballs.

This time it really is different. The great reset will make sure of that. I think the goal is to simply make it more and more difficult to purchase a home for most people. Remember, you'll own nothing and be happy.

Look at this joke of a website...http://housingbubble.blog/?p=5726&source=patrick.net

He's been predicting a crash forever. He won't even allow any kind of serious debate. I got banned simply because I said I was going to take the stance that he is wrong and has been wrong for a long time now. He banned me. What a joke.

I’m a real estate investor and flipper in the Bay Area. I live in the trenches. IMO, today’s real estate prices are ridiculous. I’m not smart enough to know when the housing market will drop/crash and how bad it would be. One thing I see is that paying today’s housing prices would make one an indentured servitude on the property taxes alone.

Patrick says

BayArea says

The regret runs deep I’m sure.

Lol, what? I retired 10 years early by renting.

Not you specifically Patrick… I’m just pointing out how much missed equity there was by renters over the last decade.

I rented a small 2bd house in San Carlos for 5yrs. The landlord made $500-600k in home equity during the time I was renting his home. That stung.

BayArea says

The landlord made $500-600k in home equity during the time I was renting his home. That stung.

Realized gains, minus upkeep and taxes, adjusted for inflation?

BayArea says

The landlord made $500-600k in home equity during the time I was renting his home. That stung.

It really depends on the time frame. I bought my shack in early 2004 and am up about 3.3x in those 18 years. But the S&P 500 is up about 4x during that time. Many things to consider when comparing the two. I'm guessing the house was a better "investment," but not but much. One problem with selling the house is that you wind up with an enormous capital gain all in one year — not good with progressive capital gains rates and extra addons in taxes in that bonanza year.

SunnyvaleCA says

BayArea says

The landlord made $500-600k in home equity during the time I was renting his home. That stung.

It really depends on the time frame. I bought my shack in early 2004 and am up about 3.3x in those 18 years. But the S&P 500 is up about 4x during that time. Many things to consider when comparing the two. I'm guessing the house was a better "investment," but not but much. One problem with selling the house is that you wind up with an enormous capital gain all in one year — not good with progressive capital gains rates and extra addons in taxes in that bonanza year.

Did you buy your house in full in the same way you bought your SP500 shares in full? Or do we need to adjust your 3.3x figure?

Most people put down 20% or less for a 5x or more lever.

Things keeping prices up:

1. Lack of supply
2. Demand (from both traditional household buyers and wealthy investors)
3. Stock market gains could easily be converted into real estate investment (in other words stock market has been like a printing press That went into overdrive since the 2008 housing crash and this inflation in stocks could and has propped up housing prices to a degree.
4. Cost of borrowing is near or lower than real inflation (partly due to low rates, partly due to endless money printing, and partly due to stock price rises which is another form of money printing).
5. In most places even the ridiculously high prices are not out of line with ridiculously high rent, but all real estate is local and therefore either local economy and salaries must justify the price or in some cases wealth from outside the community can push up prices in high demand areas. Unless salaries, wealth or rents go down, people will continue buying houses and keep prices elevated.
6. Immigrants push up housing demand, and there is no sign of slowing immigration, rather the opposite is likely, more legal and illegal immigrants.
7. Older people can’t afford price decreases as much of their wealth is in property, they often have places of power in governments and will do all they can to keep prices high.

PeopleUnited says

1. Lack of supply

Supply versus inventory - synonymous?

Yesterday's SJ Mercury News:

https://www.mercurynews.com/2022/03/15/photos-this-basic-sunnyvale-home-sold-for-close-to-3-million-800000-over-asking/?source=patrick.net

About $30k/yr in property taxes.

Your friendly neighborhood public employee unions thank you.

BayArea says

I also enjoyed reading all the perma-bear content on here then and now. The regret runs deep I’m sure.

Common Sense is not perma-bear: It's Common Sense.

Common Sense is to be willing to pay a reasonable ownership premium for the privilege of "ownership".

What is the point of the privilege of ownership? A measure of control and some stability over our living situation. We're not at the mercy of the whim of a landlord who may not renew the lease. We can predict our future payments with fixed rate mortgages and Proposition 13. These are worth paying a reasonable ownership premium, I suppose. The ownership premiums for recent buyers here in the Cool And Hip (and Smug) Bay Area are not reasonable. Just ask E-man who is an expert on this topic.

Eman says

I’m a real estate investor and flipper in the Bay Area. I live in the trenches. IMO, today’s real estate prices are ridiculous. I’m not smart enough to know when the housing market will drop/crash and how bad it would be. One thing I see is that paying today’s housing prices would make one an indentured servitude on the property taxes alone.

I suppose a reasonable argument can be made to buy a Timeshare. Privilege of ownership. Stability. A measure of control. Buying at recent prices, with the massive ownership premiums, is like overpaying for a Timeshare. (At least, for the time being, one can get out from under their "Bay Area Timeshare" by selling to a Greater Fool). You think a Bay Area home is not like a Timeshare? Try not paying your Maintenance Fees (property tax) and see what happens.

A reasonable ownership premium is probably a Good Value. A large one is ridiculous Sunk Capital.

B.A.C.A.H. says

I suppose a reasonable argument can be made to buy a Timeshare.

Never met anyone who didnt regret buying a timeshare. The costs dont make sense and the fees kill you. Many times I stay at nice hotels for free due to the travel points/credit card points. But even paying full price is still much cheaper than timeshares + you are not tied to any restrictions or hidden fees.

Timeshares are a racket.

I'd like to tell you I timed the market when I bought my first house a decade ago, but in hindsight it was a combination of luck and persistence.

There are rules of thumb that exist for a reason. Don't spend more than 30% of your monthly income on housing, purchase price should not exceed more than 2.5x your annual salary, etc. These metrics have held true for almost a century, irrespective of rates, inflation, lending policy, etc.

At some point, the price becomes too much, houses stop selling and prices drop. Two things I know to be true. First, the upside of any bubble always carries on far longer than a rational person would expect. Normally 1 to 3 years beyond "saturation", that is to say the point at which above rules are exceeded.

Second, the crash starts slow at first then occurs all at once. Cracks appear, you'll see asking prices start to drop as homes stay listed for months, not days or hours. Then something happens in thw markets that cause credit to contract and bang! Avalanche begins and prices plummet. Happened in 2008 and can (and will) happen again. Spring 2023 is my guess for when the bottom starts to drop out.... but it's just a guess.

Al_Sharpton_for_President says

PeopleUnited says

1. Lack of supply

Supply versus inventory - synonymous?

Inventory tells us who wants to sell. It is part of the equation.

But supply also includes houses that could be sold (are underutilized) and there simply is not enough houses built to meet demand, and if prices drop, demand will only go up, unless people start losing their jobs or dying.

I just don't think anyone really understands how much money is "still" made in the bay area. Apple/FB/etc..
I have friends at Apple/FB who make a good salary (but not great) but make 2-3x salary in stock - per year!
All of these engineers get stock options that are worth FAR more than their salary. We are in a localized housing bubble because of that.
I don't see prices dropping as even far left of center cities fight higher density housing and toe the NIMBY line.
I also think that this war in Eur may keep housing high here also as those tech folks immigrate out of the UKR/RUS etc.
and into the bay area. Plus chi-coms keep pouring in and buying assets in the US for protection.

Even outside of the bay area, prices everywhere are high. That is probably more of an easy money situation leading to higher housing prices.