Housing Crash 2.0?

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Submitted by kev374 on August 11, 2016 - 10:32pm

Submitted by spdrun on August 11, 2016 - 10:51pm.

All markets are somewhat cyclical ... a "crash" is just an opportunity. Of course the bumping up against debt-to-income limits they mention doesn't necessarily bode a crash, just an inflection point where home prices will rise roughly with incomes vs rising faster. (Assuming fairly constant rates.)

Submitted by The-Shoveler on August 12, 2016 - 5:51am.

Could happen but it would be extremely unlikely to be anything close to what happened in 2006-11.

You need to let anyone who has no income buy any home they want to and then you would have to let that run a few years IMO.

Anyway IMO we are a long way from that currently.

Even the finance guy said that in the beginning but the host seem to force the issue at the end to meet/keep the shows theme LOL.

Submitted by joec on August 12, 2016 - 1:24pm.

Unlike 2004-2008, I knew people who were buying multiple homes to flip every few months/years back then. All they wanted was the capital appreciation of a sale and it wasn't about cash flowing or anything since they did interest only loans, ninja loans and in 6 months or a year, sell and multiply the game with 3 houses vs. 1.

They eventually loss all the homes of course. This kept rents low, but house prices high so that was why the bubble was then and not now IMO. Rent vs own/buy was out of whack back then.

Rents now are insane and like the person who is in escrow who was paying 1k/rent, if you had a 4k/month rent, you wouldn't think it's as risky when your rent maybe even MORE than your mortgage...even when not taking any tax benefits into account.

I see plenty of people in my hood paying 4k/month rents now so with rents so high, buying isn't as risky unless you really don't plan to stay long.

Everyone who bought in 2008-2011 are probably sitting on close to 50% equity and paying even less after a refi now.

TR:DR: No bubble, all are complaints that housing is too high (which it is, but rents are too high too)...

You would need a major economic collapse or some other event for it to drop materially (meaning 25+% drop).

Submitted by kev374 on August 12, 2016 - 5:46pm.

I beg to differ... I think speculation is rampant in this market and investors/speculators can exit the market and dump their assets with the same intensity as what happened in 07-08.

Many of these properties are linked to returns on funds and if there is a economic downturn and the assets are not performing it will be time to liquidate/shutdown as people pull money out of the funds.

I see a lot of people in the media say it's not like the last time just because NINJA loans are absent.. that is hogwash. Bubbles can be caused in a variety of ways..the common denominator being speculative greed. It does not matter if it's the investor leveraging credit or the common man doing it by taking NINJA loans.

Submitted by flyer on August 12, 2016 - 7:03pm.

To your points, kev, agree.

Per the video posted, those interviewed mentioned that most mortgage loans they are seeing today are pushing the limits of DTI, so, once again, it appears many are still living beyond their means.

They also mentioned that a 17% drop could, in fact, affect many, so guess we'll just have to see what happens. Even though we have substantial real estate holdings dating back many years, from what I'm reading, I would definitely not want to be out on a financial limb of any type going forward.

Submitted by flu on August 12, 2016 - 7:04pm.

For me, rentals are like pensions. Steady retirement income when you no longer have a salary. The exception is if there is a 2.5x appreciation then I would consider selling.

Most people who bought early on have a lot of staying power for better or worse.

Submitted by flyer on August 12, 2016 - 7:36pm.

Agree.

We've had many investment properties for years, and have never had to sell them during any downturn, or chosen to sell them, even though we got in cheaply, and appreciation has been excellent.

In addition, they will benefit our kids going forward, so we will let them decide what they want to do with them at that point in time, but those getting in now might want to give it some serious thought.

Submitted by moneymaker on August 12, 2016 - 9:55pm.

kev374 wrote:
I beg to differ... I think speculation is rampant in this market and investors/speculators can exit the market and dump their assets with the same intensity as what happened in 07-08.

Many of these properties are linked to returns on funds and if there is a economic downturn and the assets are not performing it will be time to liquidate/shutdown as people pull money out of the funds.

I see a lot of people in the media say it's not like the last time just because NINJA loans are absent.. that is hogwash. Bubbles can be caused in a variety of ways..the common denominator being speculative greed. It does not matter if it's the investor leveraging credit or the common man doing it by taking NINJA loans.


Totally agree investors are chasing returns and when that starts to turn there will be a run by most, not all, but enough to cause a crash. Just like in the last bubble burst, not everyone lost there place though at times it seemed like it.

Submitted by ucodegen on August 13, 2016 - 12:15am.

What the video doesn't talk about are Credit Default Swaps - which was what really took down the market. It is a highly leveraged product which really is an insurance product but is regulated like an investment product. If you are on the 'cover' side of a CDS, you are obligated for any losses that occur on which loan or loan bundle you are covering. CDS(s) took down Bear Stearns, almost took down Goldman, Lehman etc.

CDOs may be a problem, but CDS(s) are toxic -- and they are still not regulated as an insurance product.

"The Big Short" is on Netflix.

Submitted by Coronita on August 13, 2016 - 8:16am.

Wouldn't mind picking up more rentals. Things are at a point which rentals aren't penciling out out.

Submitted by Rich Toscano on August 13, 2016 - 10:07am.

kev374 wrote:

I see a lot of people in the media say it's not like the last time just because NINJA loans are absent.. that is hogwash. Bubbles can be caused in a variety of ways..

You're right, that doesn't disprove a bubble. But it's NOT a bubble like last time.

I didn't watch the video past the intro (it's just an advertisement it seems?), but there hasn't been much mention of the defining characteristic of bubbles: valuations. Valuations now vs during the bubble are not even in the same ballpark. (And that's without considering that rates are much lower now).

Is it a bubble? That's kind of a squishy term, so I guess it depends on your definition. By the definitions I favor, it is not; maybe some could argue otherwise for other definitions. But it does not compare at all to the mid-2000s bubble.

Submitted by an on August 13, 2016 - 1:14pm.

flu wrote:
Wouldn't mind picking up more rentals. Things are at a point which rentals aren't penciling out out.
I totally agree. Would be 2nd time hitting the lottery if 2005 repeats itself. I don't mind either 1975 or 2005 repeating itself. I'm happy either way. I don't see it happening though.

Submitted by an on August 13, 2016 - 1:16pm.

moneymaker wrote:
Totally agree investors are chasing returns and when that starts to turn there will be a run by most, not all, but enough to cause a crash. Just like in the last bubble burst, not everyone lost there place though at times it seemed like it.
Investors and not speculator wouldn't sell unless you see a big crash in rent as well. Why would investors/landlords sell and have to pay taxes on the gain while they're cash flowing positive? If anything, I see them extracting equity to buy even more rental if price crash and rent doesn't.

Submitted by flu on August 13, 2016 - 1:31pm.

AN wrote:
moneymaker wrote:
Totally agree investors are chasing returns and when that starts to turn there will be a run by most, not all, but enough to cause a crash. Just like in the last bubble burst, not everyone lost there place though at times it seemed like it.
Investors and not speculator wouldn't sell unless you see a big crash in rent as well. Why would investors/landlords sell and have to pay taxes on the gain while they're cash flowing positive? If anything, I see them extracting equity to buy even more rental if price crash and rent doesn't.

Exactly. I see three exit strategies.

1. Cash out refinance.

2. 1031 exchange.

3. (Used along with either 1 or 2 ) death...and Inheritance and subsequent step up cost basis when your kids take over, eliminating depreciation recapture and resetting cost basis of capital gains. Of course, this nice tax benefit will probably be eliminated in the future

Submitted by NotCranky on August 13, 2016 - 3:07pm.

I believe the bubble before this big last crash officially took SD housing down only 17%.. However there were plenty of houses down much much more. So, while the next downturn may not look to be a set up for large overall decline , it may offer plenty of opportunities in certain areas.

I don't have any ideas on where, haven't been thinking about it , but there will be good buying opportunities.

If it is blue collar areas , would piggs buy? Which investors would?
If it were Eastlake or Santee( just 15minutes from La jolla shores).

Submitted by flu on August 13, 2016 - 10:07pm.

Blogstar wrote:
I believe the bubble before this big last crash officially took SD housing down only 17%.. However there were plenty of houses down much much more. So, while the next downturn may not look to be a set up for large overall decline , it may offer plenty of opportunities in certain areas.

I don't have any ideas on where, haven't been thinking about it , but there will be good buying opportunities.

If it is blue collar areas , would piggs buy? Which investors would?
If it were Eastlake or Santee( just 15minutes from La jolla shores).

Last time, I wasn't ready for deals at the higher end. This time I would be. That said, I believe in the lazy landlord theory, irrespective of the kind of property...so long as I don't get shot going there. (the lazy landlord theory= waiting for opportunities not too far from where you are willing to live, instead of trying to go out of your way to be a landlord way yonder)

On a side note, I think a lot of this is just one big mind game. I am in l.a. and traffic is bad, stores are packed, vacancy is non existence , and it wasn't this bad just last year. Maybe now that the socal economy is better and people feel better financially with reinflated home prices, and an inflated stock market, people are just happier spending. Ah yes. Good times are back again. It will be interesting to see if the economy and the markets do turn south for the winter, who really can take advantage of it. Usually, if the market goes south like it did last time, usually that led to a pretty bad job market. So some of the very people that were hoping for a re price correction couldn't take advantage of it anyway because they were unemployed for some time.

Submitted by an on August 13, 2016 - 9:22pm.

Blogstar wrote:
I believe the bubble before this big last crash officially took SD housing down only 17%.. However there were plenty of houses down much much more. So, while the next downturn may not look to be a set up for large overall decline , it may offer plenty of opportunities in certain areas.

I don't have any ideas on where, haven't been thinking about it , but there will be good buying opportunities.

If it is blue collar areas , would piggs buy? Which investors would?
If it were Eastlake or Santee( just 15minutes from La jolla shores).

I don't doubt that there will be opportunity at the bottom of the next cycle. I just don't think we'll see 50-60% off peak like we did in 2008-2010. I also like to follow the lazy landlord philosophy as well, unless I'm presented with a killer opportunity further away. I wouldn't go out of my way to look for properties in Eastlake/Santee. I like to buy where I think major job center is. It's much easier to find renter when it's close to jobs and university.

Submitted by poorgradstudent on August 15, 2016 - 9:52am.

I doubt we will see another epic crash, but a dip wouldn't shock me, and minimally I really don't expect to see significant gains from current prices vs. inflation for the next year or two.

Basically, if I was on the fence about buying, I'd feel okay staying on the fence and watching.

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