patrick.net

1. Sell house.
2. Rent.
3. Wait for market to stop dropping.
4. Buy a house.

HunterTits says

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.

Hence why we bought. We don't have debtor prison. Just walk away if you cannot afford it. What's the big deal? I've defaulted on debt and still have an 800+ score. Hate the game, not the player. It's a business decision even on a primary home. Take some risk if the bank is willing to risk it on their end. There should be no guilt.

If the price goes down - file for the property tax reduction.

Check out the ETF that goes by the ticker "ITB"

You could buy Puts for it as far as hedge against housing price declines.

Everyone forgets... your first house affords shelter... a basic need. If you want to get unit investment properties, second homes, REITS, go for it. If you think there is a crash comming go big short 2.0.

But if you borrow against your house, treating it like an oversized ATM, at some point the piper needs to be paid. It's hard to belive for those of us that lived through it, but '08 was 15 years ago, and there is an up and comming generation of first time buyers stretching too thin for too little in an attempt to "not be priced out foverver". We've seen this movie before... and it's rare that a sequel is as "good" as the original.

This post is hilarious!

hedge against house price declines? Rofl.....I couldn't care less if the 1M equity in my primary is becoming 500k or 1.5M. Never sell RE and never take money out is my strategy.
If prices would finally cool off or even go down a bit, lovely, I would buy my next rental.
If prices go down significantly, geez, I would buy as many as I possibly could - like there is no tomorrow.

Booger says

1. Sell house.
2. Rent.
3. Wait for market to stop dropping.
4. Buy a house.

bawahahahaha

aaah, why havent I thought of that. Just dust off the ol' booger crystal ball and sell at the peak. Sign up for a rental agreement that ends exactly when the bottom occurs and just buy!

Now that we know how to do it, lets use the same magic on stocks and crypto! Simply sell high and buy low! Timing the market is for everyone now!

Oh geez.

If you bought the place to live in, who cares? Live in it.

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

Geez.

HunterTits says

You fucks getting all this 'equity' from a bubble that kept me from affording a home

us fucks kept you from affording a home? LOL
That gave me a good laugh!

If we would just all stop buying shit, HunterTits could finally afford stuff too!!
But hey, good news are on the horizon. since the majority of people here know this is 2007-like we will soon see the big, big RE crash! And HunterTits can afford his first home!! Yehaaa! As we all know, if the majority of people think there will be a crash, a crash must happen :) Kinda reminds of 2020 when people called us and told us not to buy this big, expensive house because the market is going to crash soon. LOL

B.A.C.A.H. says

If you bought the place to live in, who cares? Live in it.

exactly!

ad says

Check out the ETF that goes by the ticker "ITB"

This would be possibly good advice 4 months ago :) ITB took a 40% haircut. Nut actually, it's not really directed at my region (socal), and is a nationwide home builder index. Something similar for the case schiller san diego / los angeles CME futures would be good, I just don't see anything that tracks those.

B.A.C.A.H. says

If you bought the place to live in, who cares? Live in it.

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

Eric Holder says

If the price goes down - file for the property tax reduction.

If comps in my neighborhood go below my purchase price, this is 100% on my radar.

Zak says

B.A.C.A.H. says

If you bought the place to live in, who cares? Live in it.

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

I got some really, really great advice for you @Zak. Just sell high, rent and buy again low!

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.