patrick.net

Eman says

GNL says

Is it possible for a place to out price itself? Or does that even make sense?

Based on what I’ve learned about history, as an area becomes more and more expensive, the population is being replaced from one class of people to another. Real estate appreciation should slow down in the future to a more sustainable level, but it would still be expensive for the average Joe/Jane.

The only way for an area to have real estate price collapse is the industry in that area to get wiped out like Detroit. Every time I thought it was over for the Bay Area, new innovations was born to keep the area thriving. It’s simply amazing and madness at the same time

Northern Virginia is crazy also. I don't understand these housing doomers.

I can't help but believe somethings no Bueno though.

GNL says

Every time I thought it was over for the Bay Area, new innovations was born to keep the area thriving.

It's a self-selected population of newcomers.

Haolies and second generation of some non-haolie immigrants continue to leave. They're replaced mainly by Asian immigrants and south-of-the-border (including many illegal "migrant") types.

For these folks, even being packed like rats hot bunking in shabby old apartments and homes, backyard sheds and garages is comfortably palatial living compared to where they came from. This is the dynamism of "Silicon Valley" and the SF Bay Area. If you can't "make it here" like the ®eal Estate moguls of Hong Kong, well then you just don't have what it takes: you're a Lazy and Stupid Loser.

There are good reasons to get bearish on commercial real estate, especially the office space, but don’t overly be bearish. The owners and developers will find a way to make use of the space if they can’t lease them out. Here’s an example:

https://www.sfgate.com/local/article/viral-bay-area-zillow-listing-office-to-housing-18199614.php

I also saw an office building got converted into a Public Storage. Very well done.

A bunch of business's have to shutter due to economic downturn(reasons don't matter). Further people are leaving cities(again reasons don't matter). Further more people are working from home. CRE should have blown up at least a year ago.

“Northern Virginia is crazy also. I don't understand these housing doomers.

I can't help but believe somethings no Bueno though.”

@GNL,

The same thing happens here. Some cities priced out even the professionals. I can only gather knowledge from history and Bay Area retirees/veteran real estate investors, and make me bets accordingly, rightly or wrongly.

Just want to make my stay on this earth as enjoyable as possible. Can’t take anything with me when I’m gone. However, I’m willing to put in the hard work for 10 years so I can enjoy 40 years rather than the other way around. It’s a personal choice.

NuttBoxer says

A bunch of business's have to shutter due to economic downturn(reasons don't matter). Further people are leaving cities(again reasons don't matter). Further more people are working from home. CRE should have blown up at least a year ago.

If it should have blown up at least a year ago, why hasn’t it blown up, or could it be that the blow up is not as big as people anticipate?

Ok, so what's going to happen...

1) Rates come down and save the economy by making housing valuations shoot the moon.

2) Home values come down and save the economy by RE transactions shooting the moon.

3) RE transactions keep going lower until incomes double and everyone can afford a home and we are saved.

4) RE valuations and rates stay where they are and transactions founder. This cause the economy to fall off a cliff because so much of our economy depends of household formation.

History suggests real estate prices go up, then rates go up to cool it down. The Fed will overdo with the rate hikes. Then real estate prices will go down, and will likely drive the economy into a recession. Then the Fed will cut rates to stimulate the economy.

As ironically as it sounds, we’ll have a combination of lower real estate prices and lower rates for those who can buy and finance in time of turmoil. This is why there’s a saying “Fortunes are made during recessions.”

Except that the central bank has no control over interest rates. They certainly attempt to manipulate through printing money, but that farce has not long to live.

Interest rates will continue to rise, which means housing prices will continue to fall. Contrary to all the bullshit people peddled before '08, and some still peddle now, basic economics dictates you cannot charge more than what someone is willing to pay. But housing is collateral damage. The real bloodbath will be the US dollar, bonds, and everyone who's net worth is tied entirely to paper.

Eman says

we’ll have a combination of lower real estate prices and lower rates for those who can buy and finance in time of turmoil.

Which is exactly what you did, correct?

NuttBoxer says

Except that the central bank has no control over interest rates. They certainly attempt to manipulate through printing money, but that farce has not long to live.

Interest rates will continue to rise, which means housing prices will continue to fall. Contrary to all the bullshit people peddled before '08, and some still peddle now, basic economics dictates you cannot charge more than what someone is willing to pay. But housing is collateral damage. The real bloodbath will be the US dollar, bonds, and everyone who's net worth is tied entirely to paper.

I would actually like to see this happen. For reasons that are just to in depth for me take the time to write out. But the short version is...paper wealth is like magic beans. Not only that but, think about this...accumulated fiat is a claim on resources. YOUR labor is a resource. It is an enslaving mechanism. You want wealth, REAL wealth? Produce something. But, I could be wrong.

Sounds like Adam Smith you are talking about GNL. Karl Marx ironically espoused Smith's ideas in his writings.

NuttBoxer says

Interest rates will continue to rise, which means housing prices will continue to fall. Contrary to all the bullshit people peddled before '08, and some still peddle now, basic economics dictates you cannot charge more than what someone is willing to pay. But housing is collateral damage. The real bloodbath will be the US dollar, bonds, and everyone who's net worth is tied entirely to paper.

I see one more rate rise of 0.25% and the Fed Funds rate will peak at 5.5%.

I don't see them rising it again as long as 12 month CPI remains below 4%.

Let's see how CPI (and PCE) does in next few months as far as monthly changes.

I am seeing here in the Florida panhandle how vacation rental prices are dropping for beach condos.

Also more people shopping food at Walmart and eating out less.

Look at Disney ticket sales. They are down a lot. They coming to Florida panhandle for better value vacation. Roll Tide.

And all that tells me less inflationary conditions.

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@ad,

Well said. Shelter is about 40% of the CPI.

Housing/rent goes up = higher inflation
Higher inflation = higher rates to tame inflation

Housing/rent goes down = lower inflation
Lower inflation = lower rates

Housing goes down is deflationary.
Deflationary = lower rates

Why housing goes down? Excess supply. Excess supply = either due to overbuilding, or recession where people lose their house to foreclosure. More distress sales = lower prices. Lower prices = deflationary. Deflationary = lower rates.

This was why I said lower housing prices tend to go with lower rates while higher housing prices tend to go with higher rates. The Fed fund rate is a lagging indicator. Wall Street also predicts one more 0.25% rate hike, and that’s it. It’s just a matter of time before housing cools off, then drops. Then the Fed will cut rates. Housing drops some more. The Fed will cut rates some more. That’s how economic works. The Fed is reactive, not proactive.

I saw this economic cycle a couple times in history. First was in the 1990’s (S&L crisis). Then after 9/11/2001 when the Fed cut rates to 1% and left it there for years.

When the GFC hit, all stars lined up including the HAI (Housing Affordability Index). I said to my wife "Let me quit engineering and try real estate for 3-5 years. If I don't make it, I can always get my job back. If it works out, we'll be set for life." It took 3.5 years to hit my goal. The rest is history.

Saw this article on Quora, and there are some interesting truth about being a real estate investor and the real estate industry.

https://www.quora.com/What-is-the-darkest-secret-in-the-residential-real-estate-industry/answer/Nicholas-Maslaney?ch=15&oid=187582363&share=e1113d2f&srid=hK5Qu5&target_type=answer

Eman says

Higher inflation = higher rates to tame inflation

Housing/rent goes down = lower inflation
Lower inflation = lower rates

Housing goes down is deflationary.
Deflationary = lower rates

Why housing goes down? Excess supply. Excess supply = either due to overbuilding, or recession where people lose their house to foreclosure. More distress sales = lower prices. Lower prices = deflationary. Deflationary = lower rates.

This outlook completely ignores the purpose of a central bank. Central banks exist to inflate the money supply, that's the only thing they will ever do. As mentioned, every dollar in circulation represents a debt. For this reason central bankers will never risk deflation as more debt = more power for them as the ultimate lender. By creating speculative bubbles in various areas of the economy, housing, stocks, commodities, etc, the central bank is able to leverage greed to get people to over-commit to an investment scheme, the object of which is highly inflated. Eventually the scheme is recognized, people rush to get out, and the asset collapses. At this point the central bankers and their buddies can come in and scoop up the assets at pennies on the dollar because they run the scheme, and print the money. Their ultimate goal is to inflate everyone into the poor-house but themselves, take control of all assets, the most valuable of which is you. Slavery ended in most of the world hundreds of years ago because it was unprofitable. With the controls in place now, that problem is solved.

There are so many people on patnet who would greatly benefit from reading Mises or Rothbard. Or if you have the time Griffin.

NuttBoxer says

Their ultimate goal is to inflate everyone into the poor-house but themselves, take control of all assets, the most valuable of which is you.

"If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered.... I believe that banking institutions are more dangerous to our liberties than standing armies.... The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."

In the long term, I beleive our only way out is to not borrow. Ha

That's what I strongly believed during my formative years, and it seems wiser every year that passes.

If you expect a period of hyper-inflation, it makes sense to go into as much fixed rate debt as possible.

A friend bought a home in 2009 for 280k and recently sold it at 550k. Relocated to Dallas from Columbus. Buying that home for 550k makes no sense to me but selling does. I have a couple of dollars saved up but this economy and the future worries me and I guess that's their goal. It seems to me that a lot of folks are in distress, it doesn't have to be this way but this is what they want. I will do what I can, live below my means..

gabbar says

I have a couple of dollars saved up but this economy and the future worries me and I guess that's their goal. It seems to me that a lot of folks are in distress, it doesn't have to be this way but this is what they want. I will do what I can, live below my means..

Live frugally even if you do have wealth. You sleep, bath and cook in your house. That's literally what it is. If you have kids you're never there once they're out of school. Basically you're not at your house. Even though my current home is nice, I don't want to be in it. Always looking for somewhere else to go or something to do.

I think everyone should own, but not 4k Sq. Ft. houses or bigger with a family of 4. We need to get back to the 60-70's style. 1,200-1,800 sq ft ranches. Larger lots. I hate the generational arguments, but Boomers 1,000% fucked up housing on so many level it's scary. I hope when a new wave of construction starts in mass it's 2,000 sf or less ranches. 3/2.1, maybe sneak some stuff in a basement if that's protocol for your area. We don't need huge houses.

WookieMan says

We don't need huge houses.

Correct. What we do need is a building boom like happened in the 60s. I forget the name of it but, there were a few programs(?) that allowed very quick built homes in very large numbers. I think it was the start of the VA loan program for returning soldiers or something. No, what we have now is no bueno. What I see is condos and tear downs to put up McMansions and new neighborhoods with McMansions. That's all that's being built around here.

GNL says

What we do need is a building boom like happened in the 60s. I forget the name of it but, there were a few programs(?) that allowed very quick built homes in very large numbers. I think it was the start of the VA loan program for returning soldiers or something.

You may be referring to the GI Bill that caused a building boom in the 1950s. WWII vets found they could buy instead of rent. A documentary by PBS referred to how Levittown went from a planned community of rentals to selling the homes to GIs instead. Most were 2 bedroom.

Yes, I think that's it...Levittown. Does anyone doubt 2/1 homes on zero lots could be sold like hotcakes?

It was also the start of the 15 year mortgage. Before that people bought their houses outright, or a lot quicker than 15 years. But with more aid, prices go up, wages stay the same, and everyone becomes a debt slave...

NuttBoxer says

It was also the start of the 15 year mortgage. Before that people bought their houses outright, or a lot quicker than 15 years. But with more aid, prices go up, wages stay the same, and everyone becomes a debt slave...

Interesting tidbit.

gabbar says

A friend bought a home in 2009 for 280k and recently sold it at 550k. Relocated to Dallas from Columbus. Buying that home for 550k makes no sense to me but selling does. I have a couple of dollars saved up but this economy and the future worries me and I guess that's their goal. It seems to me that a lot of folks are in distress, it doesn't have to be this way but this is what they want. I will do what I can, live below my means..

So you can see Bay Area appreciation for comparison purposes. Bought this house in 2009 for $215k. It’s now worth $930k.

This house bought in 2013 for $440k. It’s now worth $1.4M. I wanted to sell them in 2018 to buy more apartments, but my wife wouldn’t let me.

WookieMan says

We don't need huge houses.

Small homes are not profitable or less profitable to the home builder, this is the reason why larger and taller square footage on small lots is built, so that the builder can make more money, is this correct?

In Portland, Maine this program is voluntary. In Portland, Oregon --- well we will see.

https://www.msn.com/en-us/money/realestate/portland-launches-home-share-program-for-asylum-seekers-amid-looming-expo-shelter-deadline/ar-AA1e2vEB?ocid=hpmsn&cvid=63ef403b075d49168221f9e1fda6e46c&ei=213

Misc says

In Portland, Maine this program is voluntary. In Portland, Oregon --- well we will see.

https://www.msn.com/en-us/money/realestate/portland-launches-home-share-program-for-asylum-seekers-amid-looming-expo-shelter-deadline/ar-AA1e2vEB?ocid=hpmsn&cvid=63ef403b075d49168221f9e1fda6e46c&ei=213

Isn't NYC also trying a similar approach? That is, the city will pay homeowners to lease out spare rooms to illegals.

HeadSet says

Isn't NYC also trying a similar approach? That is, the city will pay homeowners to lease out spare rooms to illegals.

yeah, the good ole boarding house route ... i know AirBnB allows to rent out part of your home ...

i lived in a boarding house back in Manassas, VA around 2011...paid $700 (included utilities and cable) for my own bedroom and bathroom...

cheaper to do that than to rent my own $1200 a month apartment... saved about $650 a month which I put into buying index funds...

.

gabbar says

WookieMan says

We don't need huge houses.

Small homes are not profitable or less profitable to the home builder, this is the reason why larger and taller square footage on small lots is built, so that the builder can make more money, is this correct?

gabbar says

WookieMan says

We don't need huge houses.

Small homes are not profitable or less profitable to the home builder, this is the reason why larger and taller square footage on small lots is built, so that the builder can make more money, is this correct?

The other is with construction cost escalation due to building codes incrementally doing away with simple construction. In CA specifically, there has been about $50,000 to $75,000 added to the base cost of building a home no matter the square footage. It’s to the point of making “affordable” homes of yesteryear an impossibility to construct under a building permit. All of the Title 24 energy code stuff, fire sprinklers, municipal building permit costs. The builders make the homes large enough to burry the costs and dilute them on a /sf basis to make the home appear to have enough value to buy.

ForcedTQ says

In CA specifically, there has been about $50,000 to $75,000 added to the base cost of building a home no matter the square footage

Yeah, not just the international building code changes like arc fault circuit interrupters but I suspect also California-code related such as in regards to green or eco friendly building, etc.

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ad says

ForcedTQ says

In CA specifically, there has been about $50,000 to $75,000 added to the base cost of building a home no matter the square footage

Yeah, not just the international building code changes like arc fault circuit interrupters but I suspect also California-code related such as in regards to green or eco friendly building, etc.

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That $50-75k is just for the permits. Other stuff like :

When did sprinkler systems become mandatory in California?
2011
Since the California law was instituted in 2011, builders have installed fire sprinklers in more than 70,000 homes. Many municipalities and states – including Orange County and California – now have ordinances and laws for fire sprinklers in place.

Add to the expense.

Rubicon says

No distressed (forced selling) = low inventory remains = no price crash.

In my hood several houses sold at top dollars. It’s all about location. You sell a house in a great location someone will buy your overpriced house. It’s that simple and just a matter of time.

Agreed. Unless we have a massive recession with epic job losses, prices will not crash in desirable areas. There are too many rich people and house-hungry buyers who will pay cash or sell their souls to own. Additionally, so many more people with money (i.e., information workers) can work remotely, so they're less likely to be forced to sell and move if they lose their job.

Rubicon says

DTI for recent buyers is obviously pretty high. If that trend continues and the job market turns a significant number of recent home owners are in trouble.

Simply amazing the DTI of borrowers in 2021 is equivalent to 2011.

The DTI was 34% at the bottom of the last housing downturn vs. 36% during the pandemic? This explains why the housing market was so hot. A combination of low inventory and cheap debt made it affordable so buyers drove housing prices to the stratosphere.

I believe something has to give. I just don’t know which one will give first.