patrick.net

He’s young in his early 30’s. Mistakes will be made. If he gets out of this pickle, which I believe he will, he’ll be fine riding out this down cycle. Not too shabby for a kid to own 11 rentals in the Bay Area in his 30’s.

This is the lesson I learned from Sam Zell. He was in a pickle in the early 90’s during the S&L Savings Crisis. He needed someone to bail him out. Jay Pritzker gave him $50M. Sam learned a valuable lesson of being over-leveraged. He went on to become a billionaire with plenty of liquidity.

My money is liquid. I let it flow and help family and friends if ever needed. I value relationship more than money.

I helped another kid about a decade ago when he and his wife was living inside a shed behind a mobile home. He’s making so much money now. He made $4M in 2022, and $2M in 2023. He said he owes me his life. 🤷‍♂️

https://nakedemperor.substack.com/p/this-weeks-must-reads-15-21-january

Wow, that is one scary chart. I wonder what 2024 has in store. I've gone on record a couple times now and I'm going to do it again...I believe the homeownership rate will fall for a long time.

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Hopefully the 30 year mortgage rate will settle no higher than 5.5% this year. It would only be about 1.5% higher than the rate when prices peaked in early 2022.

And consider that income has gone up +3.5% annually since early 2022 as far as income catching up with housing costs.

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https://wolfstreet.com/2024/01/21/status-of-the-housing-bust-in-san-francisco-lowest-price-for-any-december-since-2017-2019-silicon-valley-and-the-bay-area/

ad says

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Hopefully the 30 year mortgage rate will settle no higher than 5.5% this year. It would only be about 1.5% higher than the rate when prices peaked in early 2022.

And consider that income has gone up +3.5% annually since early 2022 as far as income catching up with housing costs.

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At this point, it looks like a good probability it will happen by end of year. People didn’t think it was possible while you did. Great prediction. 👏

Patrick says

https://nakedemperor.substack.com/p/this-weeks-must-reads-15-21-january

Last cycle peak sales in 2006 before the drop. This cycle peak sales 2021. The difference is that inventory was building up and most people were on ARMs leading up and into it in 2006 cycle vs people are on 30-year fixed mortgages for this cycle coupled with low inventory.

If the current trajectory plays out, there’s some money to be made in the interest rate and cap rate arbitrage between now and 2025-2026. Whoever has the balls to buy investment assets now will get rewarded in the coming years.

Housing Market To Suffer 'Aggregate Price Decline'

The spring selling season may finally bring true price discovery to the market

ADAM TAGGART
JAN 22, 2024

The US real estate market remains frozen.

Transactions are at multi-decade lows, mortgage rates remain painfully high and home prices are at near record-levels of unaffordability.

As we enter 2024, should we expect things to get better for housing, or worse?

For answers, we turn to mortgage lending expert & housing analyst Melody Wright, who has been busy visiting many of America's most popular housing markets to develop a true boots-on-the-ground understanding of where the trends are headed.

Melody expects the spring selling season to finally start unlocking "true price discovery" for the US housing market, and predicts a national aggregate price decline as the year progresses.

https://youtu.be/WL2ZRP84T7Y

Eman says

Patrick says

https://nakedemperor.substack.com/p/this-weeks-must-reads-15-21-january

Last cycle peak sales in 2006 before the drop. This cycle peak sales 2021. The difference is that inventory was building up and most people were on ARMs leading up and into it in 2006 cycle vs people are on 30-year fixed mortgages for this cycle coupled with low inventory.

If the current trajectory plays out, there’s some money to be made in the interest rate and cap rate arbitrage between now and 2025-2026. Whoever has the balls to buy investment assets now will get rewarded in the coming years.

I would like to understand here, do you think interest will go back to 3% in 2025?

No one knows if or when mortgage rate will go back to 3%. However, the Fed dot plot suggests it’s a no by 2025.

The talkng heads believe a 5% mortgage rate will be the magic number that enables current mortgage holding owners to sell, i.e., that breaks the logjam.

But keep in mind that real estate prices continued to fall after the financial fraud crisis, in spite of decreasing mortgage rates.

This is beyond fucked up. We do not have a free market. Manipulation of interest rates is criminality.

@indc,

Based on history and Piper Sandler’s prediction of the economic cycle, I believe there’s a high probability we’ll see 3% 30-year fixed mortgage rate again after 2030.

Eman says

indc,

Based on history and Piper Sandler’s prediction of the economic cycle, I believe there’s a high probability we’ll see 3% 30-year fixed mortgage rate again after 2030.

~10 year cycle ?

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GNL says

This is beyond fucked up. We do not have a free market. Manipulation of interest rates is criminality.

There is free market, in theory. Manipulation of interest rates is an implicit government function.

The madness in the Bay Area continues…high interest rate or not.



https://www.reddit.com/r/BayAreaRealEstate/comments/19d7fcu/60_offers_within_a_few_days_on_this_fixer_insane/?share_id=n2J7x3bRyLmi96ZC4CLgh&utm_name=ioscss&utm_term=1&rdt=65430

AD says

Eman says

indc,

Based on history and Piper Sandler’s prediction of the economic cycle, I believe there’s a high probability we’ll see 3% 30-year fixed mortgage rate again after 2030.

~10 year cycle ?

.

18-year business cycle which started in 2012-2013. You don’t want to hear the prediction for the next downturn.

Al_Sharpton_for_President says

The talkng heads believe a 5% mortgage rate will be the magic number that enables current mortgage holding owners to sell, i.e., that breaks the logjam.

But keep in mind that real estate prices continued to fall after the financial fraud crisis, in spite of decreasing mortgage rates.

I figure we won't at least have a collapse of prices.

Maybe a 20% drop at most from the peak price set in early 2022 no later then October 2025 which will bring median house prices close to 2020 price levels.

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Will the rent drop help to drive down inflation to 2%? It’s 41% of the CPI. 2% CPI = the Fed will be more aggressive with the rate cuts.



https://x.com/ryandetrick/status/1749247574244991262?s=46&t=5lEEPaezr6Ic-W4Z6huZ5Q

gabbar says

GNL says

This is beyond fucked up. We do not have a free market. Manipulation of interest rates is criminality.

There is free market, in theory. Manipulation of interest rates is an implicit government function.

That is THE control mechanism for the economy. It can, and I am more than sure it is, be/being used to favor certain groups, no? This bouncing up and down, up and down. Down for too long etc etc. And used to protect people/companies/government etc. And if that doesn't work, bailouts. I don't believe there is a free market.

GNL says

There is free market, in theory. Manipulation of interest rates is an implicit government function.

This statement is an oxymoron.

GNL says

I don't believe there is a free market.

There never was a free market, there won't be one in the future. Everything is rigged and manipulated.

https://www.marketwatch.com/story/d-r-hortons-stock-dives-as-lower-prices-for-new-homes-hurt-profits-48596483

D.R. Horton’s stock dives as lower prices for new homes hurt profits

The stock DHI, -9.09% tumbled 9.6% toward a six-week low in midday trading, which puts it on track to suffer the biggest one-day drop since the record 20.2% plunge on March 16, 2020. The selloff comes a day after the stock had closed at a record $157.70.

35:31: “…21% of the mortgage market (being delinquent) is way over the delinquency we were in late 2006.”

Well worth a listen in its entirety.

https://www.youtube.com/watch?v=WL2ZRP84T7Y&%3B%3Bt=3725s

zzyzzx says

D.R. Horton’s stock dives as lower prices for new homes hurt profits

good tell tale as far as economy

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gabbar says

There never was a free market, there won't be one in the future. Everything is rigged and manipulated.

See around 1800-1810 for a good example of a free market. USA of course

zzyzzx says

Thank god I’m not an agent, and I don’t have rent to pay. Thank god for my wife who has been taking care of me all these years. 😅

https://x.com/charliebilello/status/1749795840061764055?s=46&t=5lEEPaezr6Ic-W4Z6huZ5Q

GNL says

Do you give a damn about your progeny? If I remember correctly, you are an immigrant. Maybe that's why you think the way you do. You aren't a real American. That isn't a knock on you, I'm just making an observation.

I'd counter he IS an American (naturalized) and like lots of risk taking American's we had in the past. Old School...

Beyond that I worked with people from all over the world and in my experience in the bay area Vietnamese are the most patriotic Americans (as a group).

Image for this thread is broken.

@AD

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Yahoo Finance no longer has this April 2022 article. Marketwatch still has it actively published. See below excerpts from Marketwatch.

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
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Mark Kiesel is thinking of selling his California home and becoming a renter. Families looking to buy a home make want to take heed.

Kiesel, who serves as global credit chief investment officer at Pimco, warned in an interview with Bloomberg that his “long-term 25-year charts” that guide his decisions to buy and sell real estate are “flashing orange right now.”

‘I think we’re in the final innings.’

— Pimco’s Mark Kiesel on the housing market’s strength
Kiesel notably called a top to the last housing bubble, selling his home in Newport Beach in May 2006. At the time, he called the housing market “the next Nasdaq bubble.” He waited until May 2012 to buy a home again, just home prices hit their nadir.

According to Bloomberg, he purchased his home in Orange County for $2.9 million back then. Today, its value is estimated to be around $5.5 million, according to Redfin RDFN, -0.94%.

Kiesel suggested that buying a home today wouldn’t net more than a 2% return; he didn’t indicate over what time period he thought that return would happen. “I can find other things I can make money on other than a house,” Kiesel said.

Kiesel’s stance differs from that of the company he works for. In a March note, Pimco analysts argued that the current housing cycle is different from the last one, because the broader housing industry was so heavily scarred by the last crash. “U.S. housing should remain supported over the long term by two pillars: a secular shortage of housing units and resilient, delevered borrowers,” they wrote.

Instead of a housing bust, Pimco analysts expect that home-price growth will slow in response to affordability challenges and rising interest rates. The average rate on the 30-year fixed-rate mortgage was 5.1% as of Thursday, close to a 12-year high, according to Freddie Mac FMCC, 7.89%. In time, the Pimco analysts anticipate that the low supply of homes for sale will recover, providing buyers with more options and creating a more balanced market.

Pimco’s view is shared by many other economists who would argue that stronger lending standards prevent against the type of behavior that contributed to the last crash. But some analysts are bearish on the market. Ian Shepherdson, chief economist at Pantheon Macroeconomics, suggested Wednesday that home sales could drop by more than 20% in the coming months, and fall even lower still.

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zzyzzx says

This is true.

House prices, which are mostly land prices, cannot rise forever. Eventually there will be a revolt, or just demographic devastation as young couples find they simply cannot afford to have children because they have nowhere to live.

The solution is Georgism, the single tax on land values and no tax on anything else, especially not income or sales.

Patrick says

The solution is Georgism, the single tax on land values and no tax on anything else, especially not income or sales.

The only result I can come up with is hoarding of land would most likely end. It would cost too much to keep it unused.

Patrick says

The solution is Georgism, the single tax on land values and no tax on anything else, especially not income or sales.

That won't solve the government impediments on construction.

Patrick says

zzyzzx says

This is true.

House prices, which are mostly land prices, cannot rise forever. Eventually there will be a revolt, or just demographic devastation as young couples find they simply cannot afford to have children because they have nowhere to live.

The solution is Georgism, the single tax on land values and no tax on anything else, especially not income or sales.

it’s actually illegals and h#bs. housing is supply demand issue… kinda a problem when millions of illegals are entering. and jobs going to foreigners fucks americans out of jobs and opportunities. fox that and you fox america

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Invitation Homes down about 27% from all time high, and DR Horton down about 12% from all time high.

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https://www.newsweek.com/housing-market-warning-sign-peter-schiff-low-sales-renting-trend-1863653

As the U.S. housing market grapples with its lowest sales since the mid-1990s, economist Peter Schiff warns of a looming crisis in which homeowners are resorting to renting their properties to retain their existing mortgage in what he calls a deteriorating economy.

With the National Association of Realtors (NAR) reporting a slump in existing home sales and a surge in median sales prices last week, Schiff, on his The Peter Schiff Show podcast, pointed to a potential trend in the real estate market in which homeowners will begin renting out their homes to retain the properties on which they have low mortgage rates versus selling on the open market, which would cause them to take on a new mortgage with a higher interest rate.