Impending housing crash?

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htxag09
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In reply to MAS444 • 3:32p, 9/23/22
AG
MAS444 said:
Do you really think higher end custom builders are holding that many lots? I know some do - but that's generally not their business plan. I do believe lots may loosen up and become cheaper if the markets continue down this current path...but I just don't think it'll be because of custom builders selling them cheap.

Totally uneducated opinion - other than I know lots of custom builders and those that do business with them.

Depends on the area. I know they are in spring valley village area of houston. And it isn't a huge neighborhood so holding just a couple lots makes a difference
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MAS444
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In reply to HtownAg92 • 3:33p, 9/23/22
AG
I'm guessing those are mostly owned/financed by third party investors. It's usually not the builders' money - even if they may be the technical owner. Again, just my experience...
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Tex117
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In reply to Malibu • 3:36p, 9/23/22
AG
Malibu2 said:
Tex117 said:
I always say this BUT...

Wait wait, I was absolutely assured by RE people that prices would not come down...grumble grumble supply something or other.

I don't know why it irks me that RE people think that their asset class is somehow immune from macrotrends in the economy. Especially one that is so closely tied to monetary policy. Just boggles my mind.

Yes, that is true but the supply is still constrained. Millennials are just now having enough money for down payments into a huge demographic entering the market of homebuying. We didn't build enough SFH for millennials to buy homes and Boomers aren't downsizing en masse. As the monthly cost of ownership rises with interest rates, prices will eventually fall because markets like to be at equilibrium, but it's not as simple as saying the housing market run up was merely because of cheap money.
Of course some of this is true.

But also, its not like Millineals are some glut of people that didn't exist before and after. Its not like there was a millineal "baby boom." Its just an arbitrary grouping of people. There were young gen-xers entering the market right before the Millineals.

Now, if you want to talk about how certain financial events (like 08 Great Recession), bottlenecked a portion of the millineals from buying homes sooner than they wanted, then that's an interesting discussion worth having. Boomers holding on...yup...another factor...gawd that generation sucks).

But just as a general proposition...the fact that Millineals are now entering the market means nothing.
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12thMan9
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In reply to htxag09 • 3:51p, 9/23/22
AG
htxag09 said:
MAS444 said:
Do you really think higher end custom builders are holding that many lots? I know some do - but that's generally not their business plan. I do believe lots may loosen up and become cheaper if the markets continue down this current path...but I just don't think it'll be because of custom builders selling them cheap.

Totally uneducated opinion - other than I know lots of custom builders and those that do business with them.

Depends on the area. I know they are in spring valley village area of houston. And it isn't a huge neighborhood so holding just a couple lots makes a difference


As a former Memorial area resident, that area is the oasis in the desert. You're not looking there unless you've got money, and plenty of it. So market changes, IMO, don't impact as much.
Ronnie '88
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Diggity
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In reply to HtownAg92 • 3:54p, 9/23/22
AG
HtownAg92 said:
Diggity said:
HtownAg92 said:
Diggity said:
so your strategy is wait for the builders to sell their lots because they can't make the numbers work (presumably with a lower cost basis) and then hire a builder to build you a house, because you can make the numbers work? Seems like a stretch.
Sort of. Builders are holding lots (and paying holding costs) that they bought in hopes of building specs and customs on all of them. With demand down and their costs up, they may have to unload some lots and build one or two homes at a time. (I'm not talking the big burb builders, I'm talking the custom ITL builders).

We can probably get a decent deal on a lot and they can still sell it for profit, since it was scooped up for cheap on a cash deal. We buy and wait. Seems that builders were allowed to name their sq. foot price for years, but may not be able to now. May not be able to ask near that a year from now. Then we build at a better price.

So not today's numbers, next year's numbers.
I think the only flaw in your line of thinking is that building prices will decrease substantially.

History tells us they tend to go in one direction. I would be surprised to see significant drops in construction costs.
Could be right, but we built in the 2008 bust when our builder was offering incredible deals in our neighborhood because he was desperate.
That's pretty unusual in my experience.

Most of the deals you're going to get during slowdowns are going to be on inventory homes.
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Red Pear Luke
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In reply to Tex117 • 6:01p, 9/23/22
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AG
Tex117 said:
I always say this BUT...

Wait wait, I was absolutely assured by RE people that prices would not come down...grumble grumble supply something or other.

I don't know why it irks me that RE people think that their asset class is somehow immune from macrotrends in the economy. Especially one that is so closely tied to monetary policy. Just boggles my mind.


Sponsor Message: We Split Commissions. Full Service Agents in Austin, Bryan-College Station, Dallas-Fort Worth, Houston and San Antonio. Red Pear Realty
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JP76
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In reply to Captain Winky • 8:19p, 9/23/22
Captain Winky said:
What drop in prices would define a crash? 10%, 20%, 50% reduction in asking prices? Just curious if there is a real definition, or what people think that looks like.


The bigger issue is this

Austin house was 500k a year ago and went up 40% in 2021 so now 700k. Now housing reverts to mean and gives 40% back so that 700k house now is worth 420k. This is one of the key factors that causes people to start walking away and it only builds from there. People want to argue that investors will start stepping in but cashflow becomes an issue with a declining asset in a rising rate environment.
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Malibu
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In reply to Tex117 • 4:19p, 9/24/22
Tex117 said:
Malibu2 said:
Tex117 said:
I always say this BUT...

Wait wait, I was absolutely assured by RE people that prices would not come down...grumble grumble supply something or other.

I don't know why it irks me that RE people think that their asset class is somehow immune from macrotrends in the economy. Especially one that is so closely tied to monetary policy. Just boggles my mind.

Yes, that is true but the supply is still constrained. Millennials are just now having enough money for down payments into a huge demographic entering the market of homebuying. We didn't build enough SFH for millennials to buy homes and Boomers aren't downsizing en masse. As the monthly cost of ownership rises with interest rates, prices will eventually fall because markets like to be at equilibrium, but it's not as simple as saying the housing market run up was merely because of cheap money.
Of course some of this is true.

But also, its not like Millineals are some glut of people that didn't exist before and after. Its not like there was a millineal "baby boom." Its just an arbitrary grouping of people. There were young gen-xers entering the market right before the Millineals.

Now, if you want to talk about how certain financial events (like 08 Great Recession), bottlenecked a portion of the millineals from buying homes sooner than they wanted, then that's an interesting discussion worth having. Boomers holding on...yup...another factor...gawd that generation sucks).

But just as a general proposition...the fact that Millineals are now entering the market means nothing.

https://usafacts.org/data/topics/people-society/population-and-demographics/our-changing-population?endDate=2021-01-01&startDate=2020-01-01

As a point of fact the bracket of people between 30-40 (Millennials) is the nations largest cohort and is a lot bigger than Gen X. There was a baby boom of millennials, and they are a large group of people that didn't exist before that exist now that are buying houses. It's not an arbitrary grouping of people, it's a cohort set of eligible buyers.

When you have a larger than ever cohort enter a market as buyers, that is a growth in demand. Greater demand and limited supply growth means higher prices.
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Sea Speed
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In reply to YouBet • 4:39p, 9/24/22
AG
YouBet said:
Market down another 700 pts. Awesome.

I already have my floor price in mind that if we don't get it I'm just going to pull our house and we will just carry both homes and wait until recovery (assuming we recover anytime in the next 1-3 years).


Rent it out man. At least attempt to if you're going to carry it.
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YouBet
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In reply to Sea Speed • 6:19a, 9/25/22
AG
Sea Speed said:
YouBet said:
Market down another 700 pts. Awesome.

I already have my floor price in mind that if we don't get it I'm just going to pull our house and we will just carry both homes and wait until recovery (assuming we recover anytime in the next 1-3 years).


Rent it out man. At least attempt to if you're going to carry it.


That's on the table
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KvS
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In reply to YouBet • 5:57p, 9/25/22
AG
If you don't need the liquidity from the sale of the house, renting is great right now with interest rates headed higher.

I listed my house for sale at the end of May, had two buyers back out as interest rates rocketed up without getting an inspection, then pulled the house at the end of July to put it up for lease. I had a signed lease agreement within three days of listing.

It can be a bit scary to pull the trigger and worry what if it doesn't rent, but it will. The single family rental business is benefiting from interest rates going up and apartment rents going up (my tenants apartment was wanting an 11% increase to renew).
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YouBet
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In reply to KvS • 6:13p, 9/25/22
AG
KvS said:
If you don't need the liquidity from the sale of the house, renting is great right now with interest rates headed higher.

I listed my house for sale at the end of May, had two buyers back out as interest rates rocketed up without getting an inspection, then pulled the house at the end of July to put it up for lease. I had a signed lease agreement within three days of listing.

It can be a bit scary to pull the trigger and worry what if it doesn't rent, but it will. The single family rental business is benefiting from interest rates going up and apartment rents going up (my tenants apartment was wanting an 11% increase to renew).


Yes, we have three soft leads right now. If we don't get an offer by end of week, we are going to start exploring this.

To your point, we don't need the liquidity from the sell. Obviously don't want to carry expenses of two homes though and the wife is ready to move.
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Sea Speed
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In reply to YouBet • 6:23p, 9/25/22
AG
Rent that sucker out!! It was the best decisuon we have made in a long time!
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KvS
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In reply to YouBet • 6:30p, 9/25/22
AG
Good luck!

There are folks on this board and the real estate board with far more single family rental business experience than myself (learned from my dad who is in the business but this is my first rental), happy to share my thoughts as a first timer if you end up going that route.
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Tex117
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In reply to Malibu • 10:18a, 9/26/22
AG
Malibu2 said:
Tex117 said:
Malibu2 said:
Tex117 said:
I always say this BUT...

Wait wait, I was absolutely assured by RE people that prices would not come down...grumble grumble supply something or other.

I don't know why it irks me that RE people think that their asset class is somehow immune from macrotrends in the economy. Especially one that is so closely tied to monetary policy. Just boggles my mind.

Yes, that is true but the supply is still constrained. Millennials are just now having enough money for down payments into a huge demographic entering the market of homebuying. We didn't build enough SFH for millennials to buy homes and Boomers aren't downsizing en masse. As the monthly cost of ownership rises with interest rates, prices will eventually fall because markets like to be at equilibrium, but it's not as simple as saying the housing market run up was merely because of cheap money.
Of course some of this is true.

But also, its not like Millineals are some glut of people that didn't exist before and after. Its not like there was a millineal "baby boom." Its just an arbitrary grouping of people. There were young gen-xers entering the market right before the Millineals.

Now, if you want to talk about how certain financial events (like 08 Great Recession), bottlenecked a portion of the millineals from buying homes sooner than they wanted, then that's an interesting discussion worth having. Boomers holding on...yup...another factor...gawd that generation sucks).

But just as a general proposition...the fact that Millineals are now entering the market means nothing.

https://usafacts.org/data/topics/people-society/population-and-demographics/our-changing-population?endDate=2021-01-01&startDate=2020-01-01

As a point of fact the bracket of people between 30-40 (Millennials) is the nations largest cohort and is a lot bigger than Gen X. There was a baby boom of millennials, and they are a large group of people that didn't exist before that exist now that are buying houses. It's not an arbitrary grouping of people, it's a cohort set of eligible buyers.

When you have a larger than ever cohort enter a market as buyers, that is a growth in demand. Greater demand and limited supply growth means higher prices.
Interesting article and thank you for posting. Ill see if I can find some more data regarding a "millennial boom." The graphs shown weren't super clear.
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Aggie95
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5:05p, 9/26/22
AG
supply is still going to be a problem. We've seen a big increase in pricing over the last 10 years and even a lot that had good equity went ahead and took that equity out to remodel, add on, etc. So you have a giant pool of homes that cannot be sold if prices come down too much. Add in that new builds will definitely slow down and I just don't see a scenario where there is enough supply to impact pricing across the board. Sure, there will be certain markets and some deals around, but I just don't see a 2008 style crash.
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Diggity
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In reply to JP76 • 5:16p, 9/26/22
AG
JP76 said:
Captain Winky said:
What drop in prices would define a crash? 10%, 20%, 50% reduction in asking prices? Just curious if there is a real definition, or what people think that looks like.


The bigger issue is this

Austin house was 500k a year ago and went up 40% in 2021 so now 700k. Now housing reverts to mean and gives 40% back so that 700k house now is worth 420k. This is one of the key factors that causes people to start walking away and it only builds from there. People want to argue that investors will start stepping in but cashflow becomes an issue with a declining asset in a rising rate environment.


Reversion to the mean wouldn't indicate a 40% drop in house values.

That would be Armageddon. Even at the worst of the 2008 housing crash, markets on the west coast "only" dropped 30%. People don't have nearly as much leverage as they did back then.
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Adverse Event
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In reply to JP76 • 6:13p, 9/26/22
JP76 said:
Captain Winky said:
What drop in prices would define a crash? 10%, 20%, 50% reduction in asking prices? Just curious if there is a real definition, or what people think that looks like.


The bigger issue is this

Austin house was 500k a year ago and went up 40% in 2021 so now 700k. Now housing reverts to mean and gives 40% back so that 700k house now is worth 420k. This is one of the key factors that causes people to start walking away and it only builds from there. People want to argue that investors will start stepping in but cashflow becomes an issue with a declining asset in a rising rate environment.


Relevant:
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Tex117
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In reply to Adverse Event • 6:42p, 9/26/22
AG
Adverse Event said:
JP76 said:
Captain Winky said:
What drop in prices would define a crash? 10%, 20%, 50% reduction in asking prices? Just curious if there is a real definition, or what people think that looks like.


The bigger issue is this

Austin house was 500k a year ago and went up 40% in 2021 so now 700k. Now housing reverts to mean and gives 40% back so that 700k house now is worth 420k. This is one of the key factors that causes people to start walking away and it only builds from there. People want to argue that investors will start stepping in but cashflow becomes an issue with a declining asset in a rising rate environment.


Relevant:
LOL.

It may not be 08, but there is going to be a correction...
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Ghost of Bisbee
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In reply to Tex117 • 9:23p, 9/26/22
AG
Yep, depressing as hell.
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bmks270
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In reply to Adverse Event • 12:29p, 9/27/22
AG
I think it's actually worse than that tweet.
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12:58p, 9/27/22
JobSecurity
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In reply to [removed post] • 1:49p, 9/27/22
AG
I don't know how anyone can buy a home today.

A 250k house at 3% a year or two ago had a payment of maybe 1500-1600. Today that house is 350 at 7% and you're looking at 2800-2900.

No amount of equity gain can offset that if you're interested in upgrading. Your "upgrade" house that was 400 is now 550 and your payment that would've been 2500 is now 4500
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Diggity
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In reply to Ghost of Bisbee • 1:49p, 9/27/22
AG
Ghost of Bisbee said:
Yep, depressing as hell.
who knew there would be consequences to the fed's zero interest policy?
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Tex117
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In reply to JobSecurity • 2:54p, 9/27/22
AG
JobSecurity said:
I don't know how anyone can buy a home today.

A 250k house at 3% a year or two ago had a payment of maybe 1500-1600. Today that house is 350 at 7% and you're looking at 2800-2900.

No amount of equity gain can offset that if you're interested in upgrading. Your "upgrade" house that was 400 is now 550 and your payment that would've been 2500 is now 4500
Don't worry. Prices wont come down or in anyway to reflect this reality - RE investors.
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HoustonAg2014
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In reply to 12thMan9 • 2:58p, 9/27/22
AG
I bought over in Afton Village back in February. I was worried as hell about rates going up and found a house in our price range. There are only houses for lease in this neighborhood. Nobody is wanting to sell over here. It's a great pocket and I really lucked out locking in 3.8% before rates went up.

Would be renting for another 3 years or living in a Houston shack. Would be paying the same mortgage as a $400k house lol. It's wild how things have changed.
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FamousAgg
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5:01p, 9/27/22
Nothing to be said over in the RE board about the issues in the housing market…
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Tex117
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In reply to FamousAgg • 5:16p, 9/27/22
AG
BattleGrackle said:
Nothing to be said over in the RE board about the issues in the housing market…
Of course not! LOL

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CS78
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In reply to Tex117 • 9:31p, 9/27/22
Tex117 said:
BattleGrackle said:
Nothing to be said over in the RE board about the issues in the housing market…
Of course not! LOL


We're all too busy raising rents!
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bmks270
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In reply to CS78 • 11:25p, 9/27/22
AG
CS78 said:
Tex117 said:
BattleGrackle said:
Nothing to be said over in the RE board about the issues in the housing market…
Of course not! LOL


We're all too busy raising rents!


Rents never go down.

Even in 2008. Look at the data.

Vacancy rates go up, but rents do not fall.
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itsyourboypookie
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In reply to Tex117 • 7:28a, 9/28/22
Tex117 said:
I always say this BUT...

Wait wait, I was absolutely assured by RE people that prices would not come down...grumble grumble supply something or other.

I don't know why it irks me that RE people think that their asset class is somehow immune from macrotrends in the economy. Especially one that is so closely tied to monetary policy. Just boggles my mind.


Come down to where?

30% drop in prices put you at 2019 pricing.
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evestor1
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10:00a, 9/28/22
Tex is going to be sorely disapointed when values dont drop in Texas as much as California...and rents are 5% higher for ... purpetuity.
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Tex117
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In reply to evestor1 • 10:06a, 9/28/22
AG
evestor1 said:
Tex is going to be sorely disapointed when values dont drop in Texas as much as California...and rents are 5% higher for ... purpetuity.
Dude, you can't even spell correctly. You must be a RE investor.

Values will drop. Powell has basically said this. RE cannot fight the FED. This is basic econ man. How RE folks think that their asset class is immune from the FED (and the market at large) when much of their industry is based on monetary policy is beyond me. Its going to happen. Book it.

By how much? Don't know. For effsakes, its already happening in Austin. https://www.redfin.com/city/30818/TX/Austin/housing-market

Just look at it.

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Tex117
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In reply to itsyourboypookie • 10:08a, 9/28/22
AG
itsyourboypookie said:
Tex117 said:
I always say this BUT...

Wait wait, I was absolutely assured by RE people that prices would not come down...grumble grumble supply something or other.

I don't know why it irks me that RE people think that their asset class is somehow immune from macrotrends in the economy. Especially one that is so closely tied to monetary policy. Just boggles my mind.


Come down to where?

30% drop in prices put you at 2019 pricing.
Thats the question. Don't know. Probably not that far...
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Malibu
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In reply to Tex117 • 10:21a, 9/28/22
Tex117 said:
evestor1 said:
Tex is going to be sorely disapointed when values dont drop in Texas as much as California...and rents are 5% higher for ... purpetuity.
Dude, you can't even spell correctly. You must be a RE investor.

Values will drop. Powell has basically said this. RE cannot fight the FED. This is basic econ man. How RE folks think that their asset class is immune from the FED (and the market at large) when much of their industry is based on monetary policy is beyond me. Its going to happen. Book it.

By how much? Don't know. For effsakes, its already happening in Austin.


Yes but, but there are other supply and demand issues. There is still more demand for housing than there is supply. When the debt service becomes too high a burden, prices will of course drop to get to equilibrium. Every increase in interest rate will further drop prices. But you still have to account for quantity demanded and quantity supplied to understand the market fundamentals for pricing.

Most of us in the real estate space have long-term debt in the low threes after an incredible run up. Will I have to tell my investors we are going to hold for an extra two years to refi or exit while we wait out a bad market? Sure. But I have stable cash flow to service debt, and even a crash and prices is not going to wipe out my holdings or make me insolvent.
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