patrick.net

Bitcoiner says

I don’t think I am wrong. Buying at peak / top in housing means very little in the context of a longterm time horizon. A purchase today at 2006 peak bubble prices is considered a steal today. Even buying today at 2020 prices would be worth a murder. Can you imagine that in a decade people would love, love, love to buy at 2023 price levels? I can. Easily.

You’re not wrong, but you’re not right either. The catch is no one knows where the peak is, and no one knows where the bottom is. However, buying at the peak locks one in a higher property tax basis vs. buying at the bottom. I have properties where I paid $150-$160k each a decade ago, and they’re worth $550-$600k now. My property tax liability is $3k/year vs. buying now and paying $8-$9k. That’s $400-$500/mo delta in cash flow perpetuity. Buying “right” allows for a higher return.

We live in an inflationary economy so assets tend to rise over time and coastal housing has been appreciating at a rate exceeding inflation. We can agree that coastal housing is a good inflation hedge. I can see real estate prices continue to rise while the yield keeps getting compressed; thus, the premium in owning vs. renting may get wider/bigger. However, I don’t believe real estate return in the next decade will be anything like the last decade.

NuttBoxer says

Like I said, already seen two houses drop several hundred off their rent because they were sitting. I ain't thinking, I'm seeing.

Yes, as supply has been increasing such as number of unsold homes on the market. My post above about Invitation Homes is part of that.

And then I noticed rentals such as for 2 bedrooms are still holding at reasonable rates in my county.

In this case, the below 2 bedroom, 1 bath apartment is near Tyndall AFB. Its very affordable at $950 a month considering the starting wage is at least $15 an hour for fast food.

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ad says

NuttBoxer says

Like I said, already seen two houses drop several hundred off their rent because they were sitting. I ain't thinking, I'm seeing.

Yes, as supply has been increasing such as number of unsold homes on the market. My post above about Invitation Homes is part of that.

And then I noticed rentals such as for 2 bedrooms are still holding at reasonable rates in my county. In this case, the below is near Tyndall AFB. Its very affordable at $950 a month considering the starting wage is at least $15 an hour for fast food.
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Very reasonable these days.

Eman says

I don’t believe real estate return in the next decade will be anything like the last decade.

Why do you suspect there wont be any more printing, I suspect 'QE' would continue under different forms some of them may not be very obvious. Eventually hidden inflation will catch up and pushes stuff like RE and stocks etc. Look at recent banks, ideally they must book losses and close them in free market system but gov is pumping from thin air and covering their irresponsibility which is a form of delayed inflation. As I said before cash is always trash. Gov inflation numbers are always fake and comical and not applicable to so many places. By the way I am not suggesting to invest toxic urban RE.

Blue says

Eman says

I don’t believe real estate return in the next decade will be anything like the last decade.

Why do you suspect there wont be any more printing, I suspect 'QE' would continue under different forms some of them may not be very obvious. Eventually hidden inflation will catch up and pushes stuff like RE and stocks etc. Look at recent banks, ideally they must book losses and close them in free market system but gov is pumping from thin air and covering their irresponsibility which is a form of delayed inflation. As I said before cash is always trash. Gov inflation numbers are always fake and comical and not applicable to so many places. By the way I am not suggesting to invest toxic urban RE.

Agree with this. But since the QE benefits the rich disproportionally, the renters, usually middle or lower middle-class or gov dependent (yes, there are upper middle class, upper class and uber wealthy renters, but I peg them at 20% max), rents will not rise as fast as house prices imo.

Blue says

Eman says

I don’t believe real estate return in the next decade will be anything like the last decade.

Why do you suspect there wont be any more printing, I suspect 'QE' would continue under different forms some of them may not be very obvious. Eventually hidden inflation will catch up and pushes stuff like RE and stocks etc. Look at recent banks, ideally they must book losses and close them in free market system but gov is pumping from thin air and covering their irresponsibility which is a form of delayed inflation. As I said before cash is always trash. Gov inflation numbers are always fake and comical and not applicable to so many places. By the way I am not suggesting to invest toxic urban RE.

From where I sit, prices/valuations are frothy. The markets need a reset. I don’t know when the reset will happen, but I expect one for valuations to comeback in-line before the markets can move significantly higher. Alternatively, the markets can continue to chug along with mediocre return in the coming years and decade.

As someone who have been buying and selling real estate every year since 2008, I haven’t bought anything in 2023. Numbers just don’t pencil out although I see some deals going down with numbers that make sense. At the moment, low inventory is helping to hold up prices. The risk/reward is not there in most cases.

Just my 2 cents.

Blue says

Look at recent banks, ideally they must book losses and close them in free market system but gov is pumping from thin air and covering their irresponsibility which is a form of delayed inflation.

There are two types of paper the banks are holding: 1) AFS (available for sale). These must be marked-to-market from a valuation POV; thus, the unrealized losses are real, and the banks are required to hold reserves for them, and 2) HTM (held to maturity), not mark-to-market; thus, no reserves are required.

Most banks hold HTM paper. Why should they book the losses? Say they lent money out at 3% for a 5 or 10-year ARM. These loans will balloon and reset themselves by maturity. Some of them, in fact, will mature sooner as the borrowers sell the assets or refinance due to their own circumstances. Banks just earn less money during this time.

Bank run was what caused these banks to fail recently.

mell says

Agree with this. But since the QE benefits the rich disproportionally, the renters, usually middle or lower middle-class or gov dependent (yes, there are upper middle class, upper class and uber wealthy renters, but I peg them at 20% max), rents will not rise as fast as house prices imo.

I expect this to happen as well regardless people like it or not. The premium to own real estate will continue to get wider. However, valuations seem frothy at the moment to me so I expect, or shall I say I believe, a high chance of a reset to happen. However, as I mentioned above, chugging along, or moving sideways, for years or a decade, is another way of a reset, or let valuations get somewhat in-line before prices getting out of line again.

mell says

Agree with this. But since the QE benefits the rich disproportionally, the renters, usually middle or lower middle-class or gov dependent (yes, there are upper middle class, upper class and uber wealthy renters, but I peg them at 20% max), rents will not rise as fast as house prices imo.

I can easily sew this being true. Does anyone doubt tech and AI will continue to kill the middle class on down the chain? If I understand correctly, the Hollywood writers strike has something to do with AI doing the job of writers and then the writers becoming editors to AI.

GNL says

I can easily sew this being true. Does anyone doubt tech and AI will continue to kill the middle class on down the chain? If I understand correctly, the Hollywood writers strike has something to do with AI doing the job of writers and then the writers becoming editors to AI.

So true. I suspect the material fed to "AI" is pretty much is free or low cost if at all paid and it produce any amount and make writers useless temporarily until it needs new stuff to feed it again.
I heard on radio that studios have enough material for the next almost a year that they do not need anything immediately from the writers. Writers strike for few weeks or months make no difference for the studios.
One way to solve this puzzle is, find a competent lawyers who can find the materials or "modified patterns" that belongs to the authors that being fed to AI on the way to create models that used as a basis to generate text/images/videos etc. for the end paid customers.
I have not explored fully but AI (neural networks) may have reverse feed back procedures to find the source pattern detection to find the original material or patterns to prove them in court to sue them for stolen stuff.

Eman says

Buying “right” allows for a higher return.

I've seen old-timers say, "You make your money when you buy", basically saying don't buy at the peak.

There has been writer's software for a while that will spit out plot suggestions and scenarios, which the actual writers only need to massage a bit. There are also 'script factories' that generate all kinds of pre-wrapped scripts for script buffets. Script writing has become industrialized.

Actual writers are mostly massaging these scripts unless there is specific plot material that needs adaptation. Also, some more seasoned writers act as 'doctors', who for large amounts of money and short work spells, will add repartee and cleverness to rote dialogues. These script doctors are often actors themselves, who know how certain types of dialogues will play out in front of the camera with particular actors.

My wife and I always laugh, because writer is the first job the Hollywood dynastic children get out of college at Daddy's studio, which is why so many plots are childish, unoriginal, plagiarized and derivative. The shallow rich kids are writing them rather than seasoned talent with real life experience. Most people would be surprised at how young the writers are for most standard fare, the '24 year old' script writer syndrome. I guess some of these spoiled spawns eventually move into production, and the next generation of spoiled entertainment industry brats take their places.

The scripts are changed and butchered so often that Hollywood has an incredibly complex 'script credit' system, in which original writers of scripts may wind up with a very small 'credit' attribution for an original script that has been altered every which way from the original. You can have upwards of six to ten writers who wind up with a credit on the scripts. These script credits are important because of resume recognition and also profit residual sharing on movies that are successful enough to generate a profit. The accounting for movies is arcane, and is designed to avoid anything that resembles a profit, but some are so successful they do transcend the accounting dodges to produce profits and residuals.

Eman says

There are two types of paper the banks are holding: 1) AFS (available for sale). These must be marked-to-market from a valuation POV; thus, the unrealized losses are real, and the banks are required to hold reserves for them, and 2) HTM (held to maturity), not mark-to-market; thus, no reserves are required.

Most banks hold HTM paper. Why should they book the losses? Say they lent money out at 3% for a 5 or 10-year ARM. These loans will balloon and reset themselves by maturity. Some of them, in fact, will mature sooner as the borrowers sell the assets or refinance due to their own circumstances. Banks just earn less money during this time.

Bank run was what caused these banks to fail recently.

From last 20 years or so, banks (maybe some exemptions) do not hold mortgages at all. Every closed transaction is sold to Fannie Me or Freddie Mac agencies. From there collateralized and sold as bond tranches to various investors e.g., mortgage REIT's. If value goes down that the risk investors took.

Bitcoiner says

just_passing_through says

Eman says

Buying “right” allows for a higher return.

I've seen old-timers say, "You make your money when you buy", basically saying don't buy at the peak.

Every time i bought houses some Schmoe told me, “you bought the peak”. In hindsight that so called peak/top would be a steal compared to todays prices. Since nobody knows, the peak discussion is a waste of time. If you want to wait for a crash like 2008/2009 you most likely never buy. From a long term perspective it makes not much of a difference if you buy +/- 10-15%. Any price you pay today is considered cheap in ten years from now.

You have to compare it though with a renter who invests their excess money during that time. Just because it's more expensive years later doesn't mean it's better than renting. There will be no crash imo but that's no reason to buy at a (local) top either. However if the interest rate and your situation is right you likely will never regret buying. Interest rates of 3% or below were the shit. Nowadays I'd think twice about buying, def a more complex calculation/consideration now

Bitcoiner says

I don’t think I am wrong. Buying at peak / top in housing

Who are you trying to convince?

Keep telling yourself that, bro.

Bitcoiner says

Every time i bought houses some Schmoe told me, “you bought the peak”.

Well, I'm quite happy I bought all my investment properties prior to 2018 but most earlier in the decade. I'm sitting tight waiting for a better entry point and making other investments in the meantime.

BTW, glad the clot shot didn't kill ya! Some folks on here were concerned when you disappeared for awhile.

REpro says

From last 20 years or so, banks (maybe some exemptions) do not hold mortgages at all. Every closed transaction is sold to Fannie Me or Freddie Mac agencies. From there collateralized and sold as bond tranches to various investors e.g., mortgage REIT's. If value goes down that the risk investors took.

This is true for 30-year fixed mortgages although Fannie/Freddie do hold some ARM commercial loans too. Most banks hold onto commercial mortgages as they have lower risk and higher yields. Unfortunately, the Fed hiked rates at unprecedented pace, even faster than Paul Volcker, which the banks couldn’t hedge fast enough; thus, resulted in unrealized losses.

With the office and retail space not doing well and likely result in foreclosures or forbearance of some sort in the near future, if not already, banks have to set aside reserves for these assets. Big money saw this coming and withdrew their money from these regional banks; thus, created bank runs. My buddy, who works for the Federal Reserve, said he’s been extremely busy at work the last few weeks. It’s obvious at this point that more regional bank failures are on the way. The too big to fail banks will be fine.

mell says

You have to compare it though with a renter who invests their excess money during that time. Just because it's more expensive years later doesn't mean it's better than renting. There will be no crash imo but that's no reason to buy at a (local) top either. However if the interest rate and your situation is right you likely will never regret buying. Interest rates of 3% or below were the shit. Nowadays I'd think twice about buying, def a more complex calculation/consideration now

Well said mell. The calculation is more complex in the current environment.

In late 2021, we got 3% IO on a 10/1 ARM with First Republic Bank. In summer 2022, it was 4.2% for a fully amortized 5/1 ARM with them. They’re no longer in business. Other banks’ quotes recently came in between 5.25 to 5.8% for 5/1 ARM while sellers still want sub 5% cap for their assets with no upside in rent.

Bitcoiner says

I said it many times, if you are happy renting, good for you!

When you think about it renting is better than buying if the rent is cheap enough.

Bitcoiner says

I like the discussion but I wish the bears could bring some inventory predictions to the table.

Inventory is already plentiful if you are looking for a new build and want an expensive house in certain areas. That's pretty much step one. It's going to take time for the repos accumulated during the moratorium to work their way through the system (and this might be step 2). I am not expecting inventory to return to normal levels at all this year. In some places (like Arizona and Florida) full of old people that literally need a constant flood of people moving in to replace all the deaths it will be interesting to watch inventory levels, as the "value proposition" is pretty much gone (as in it's more expensive for me to live in Florida then in Maryland, so why move there?). Sure it's almost always going to be cheaper to live in various places when compared to Manhattan and California, but when (the south mostly) is as or more expensive then the Midwest and most of the Northeast, who is going to move their especially with the salaries being lower (like in Florida). I'm not going to take a 25-40% cut just to live in Florida.

This is going to take years, unless the proverbial Black Swan event happens.

Bitcoiner says

Actually, active listings (which includes existing homes and new construction) are very low by historic measures.

If you look at new construction only without looking at existing homes, the inventory is high. That's what I was referring to. Something like a 7 months supply.

Bitcoiner says

Repos / moratorium? Are you talking about the upcoming foreclosure tsunami due to the mortgage forbearance?

I don't know if it's going to be a tsunami at ay point due to general slowness when it comes to repos, but yeah, between short sales and repos it should supply the market at least something that it wasn't doing in 2022.

That’s a steal and would cost you 30k for a comparable lot size in CA. AZ will always see an inflow of retirees from CA. That demand won’t dry up.

I'm thinking more along the lines of what's going to happen in the SouthEast. I would still expect people to flee CA and flood NV, AZ, etc. as long as the value proposition still exists (and it most likely will). I am expecting things to be different in the SouthEast where new builds are plentiful and the value proposition is basically gone for most people in the NorthEast and Midwest who typically move south. Of course, if people from CA decide to flood the SouthEast, that could be different, but CA will run out of conservatives eventually.

just_passing_through says

Bitcoiner says

.alpine?

My bet: El Cajon

El Cajon is way too city for me. Where I live we call going to San Diego(which starts in El Cajon), "Going into town", or "Going down the hill".

Interesting that when I share seeing rentals drop hundreds of dollars, I'm simply dismissed because reality does fit someone's agenda. Well, here's some more reality you won't like...

https://www.trulia.com/p/ca/alpine/address-not-disclosed-alpine-ca-91901--2697408133
https://www.trulia.com/p/ca/alpine/2301-s-grade-rd-s-alpine-ca-91901--2122158620
https://www.trulia.com/p/ca/alpine/1942-tavern-rd-alpine-ca-91901--2079171155
https://www.trulia.com/p/ca/alpine/1222-willowside-ter-alpine-ca-91901--2079169915

There will be no housing bust. It's becoming more and more clear to me that America is moving toward 3rd world status. At least so far as income/wealth inequality is concerned. I will predict property taxes possibly shooting to the moon though if a larger and larger % of the population can't make enough to support themselves.

Gotcha. Yeah, a city only view is bit narrow for me if I want to spot trends. I prefer county searches. Price drops that start in the county will eventually spread to the city. Makes sense the further out places have to drop first. Although personally you couldn't pay me to move back to the city, so I'd actually price real estate the opposite. Give me wide open spaces and no neighbors!

NuttBoxer says

Interesting that when I share seeing rentals drop hundreds of dollars, I'm simply dismissed because reality does fit someone's agenda. Well, here's some more reality you won't like...

https://www.trulia.com/p/ca/alpine/address-not-disclosed-alpine-ca-91901--2697408133
https://www.trulia.com/p/ca/alpine/2301-s-grade-rd-s-alpine-ca-91901--212215862 (some text omitted to shorten quote...) get="_blank">https://www.trulia.com/p/ca/alpine/2301-s-grade-rd-s-alpine-ca-91901--2122158620
https://www.trulia.com/p/ca/alpine/1942-tavern-rd-alpine-ca-91901--2079171155
https://www.trulia.com/p/ca/alpine/1222-willowside-ter-alpine-ca-91901--2079169915

Jesus, who pay these rental prices? They’re even more expensive than San Jose. 🤯

Eman says

Jesus, who pay these rental prices? They’re even more expensive than San Jose. 🤯

Probably nobody. These rentals are probably sitting empty. I mean, look at that shit and its location.

Bitcoiner says

“Bay Area home prices spike 17% as sellers pull back”

https://www.siliconvalley.com/2023/04/24/bay-area-home-prices-spike-17-as-sellers-pull-back/amp/

From the article for reference:
“For the right house, there’s definitely a lot of buyers,” said William Wu, 36, who along with his wife and two young children were at a recent crowded open house for a white four-bedroom home in the Burlingame hills with panoramic views of the San Francisco Bay. It’s estimated value is $2.5 million.
...
Wu, the home-seeking software engineer in Burlingame, recently sold the condo he and his wife, Amy, owned in San Francisco. They’re counting on that windfall going a long way in landing their dream home.
“We have a fair amount of cash, so then our mortgage doesn’t have to be as large,” he said. “Hopefully, that’s a leg up on some of the other buyers.”

This is the condo they just sold:
https://www.redfin.com/CA/San-Francisco/152-Summit-Way-94132/home/109464687
Bought at the end of 2015 for $1,176,974
Sold for $1,315,000 in March 2023.

At least they did not lose any money on the condo sale and it gives them $140k profit to roll into the home purchase.

Bitcoiner says

That’s freakin insane….3.7k for 2b/1b, 1Sqft
That’s Alpine….35min away from San Diego…

$3750 for a 2 bedroom, 1 bath that is 35 mins from San Diego ?

Wow, you can get the same condo or apartment as far as quality for around $1300 in Panama City Florida and only about 15 to 20 minutes from the beach.

.

GNL says

There will be no housing bust. It's becoming more and more clear to me that America is moving toward 3rd world status

Yeah. Maybe.

But in that case if the high inflation continues and the house prices don't crash but "stay flat" then they sort of did crash by not keeping up with the inflation.

ad says

Bitcoiner says

That’s freakin insane….3.7k for 2b/1b, 1Sqft
That’s Alpine….35min away from San Diego…

$3750 for a 2 bedroom, 1 bath that is 35 mins from San Diego ?

Wow, you can get the same condo or apartment as far as quality for around $1300 in Panama City Florida and only about 15 to 20 minutes from the beach.

.

San Diego is fucking expensive, moreso than other areas in CA by now. It has beautiful areas, but is overpriced.

B.A.C.A.H. says

GNL says

There will be no housing bust. It's becoming more and more clear to me that America is moving toward 3rd world status

Yeah. Maybe.

But in that case if the high inflation continues and the house prices don't crash but "stay flat" then they sort of did crash by not keeping up with the inflation.

Not gonna happen. Why? Muh inventory. Inventory will from this moment forward NEVER meet demand. Especially for middle and lower classes. They want to reduce consumption. They've been telling us this.

ad says

$3750 for a 2 bedroom, 1 bath that is 35 mins from San Diego ?

Wow, you can get the same condo or apartment as far as quality for around $1300 in Panama City Florida and only about 15 to 20 minutes from the beach.

They're not going to get it until they move out of CA. I actually don't have a beef with a user here currently, but people from CA see the world from their lens. It's not reality. It's their reality. My mom just sold 3 houses, 3 bed, 2.1 bath for $250k, on water that leads to Escambia Bay, to Pensacola Bay to the Gulf or you could do ICW. That would be $2-3M in CA.

They don't understand because the weather is so nice there, there's mountains, surfing, etc. They don't need to travel. They live in a bubble. Not digging at anyone, but housing is cheap as shit, including rentals in many parts of the country that are 100% acceptable places to live.

Not accounting for housing I would have lost $40k/yr moving to CA. Taxes out the gate. I had a spread sheet for it when we were contemplating it. Denver, CO was pure shit too. IL is shit, but I don't foresee us moving for a good 10-15 years. It's less shittier than other place financially which is surprising.

Bitcoiner says

home owners are protected from higher payments.

Lol! In you happen to live in CA, owner can be "protected" from property taxes and become (bigger) leach in the long run on ponzi scheme of CA 1978 Prop 13.

Blue says

Bitcoiner says

home owners are protected from higher payments.

Lol! In you happen to live in CA, owner can be "protected" from property taxes and become (bigger) leach in the long run on ponzi scheme of CA 1978 Prop 13.

How can we call Prop 13 a leech when it’s available for everyone the moment one becomes a property owner?

Look at all the CEOs who collect their paychecks through stock options so they only have to pay long term capital gains and avoid paying all kinds of taxes?

WookieMan says

The problem most don't understand is you literally owe nothing if debt was obtained without fraud. People have been trained that debt and leverage are bad because it could hurt your credit score. That's literally the only penalty as long as you didn't commit fraud by lying to get the loan and make sure your savings are in protected assets.

While a first mortgage normally has no collateral beyond the house itself, I believe if you refinance, then you are usually personally on the hook for the entire mortgage. So then the bank can go after your savings and checking accounts, etc, if you default.

Patrick says

So then the bank can go after your savings and checking accounts, etc, if you default.

Not going back to my comment, but I believe I said keep your assets in protected class investments. You should really never have more than $10k in a personal checking account and $10k in a savings. Once you stop paying go to cash, get a nice safe. NEVER borrow from the bank you have a checking or savings account even if you don't default. Have your 6 month safety net in cash so it's not traceable. Trusts are good as well for protection.

Also they cannot garnish wages. It's harder if you're into stock investment though. They can go after that. But you can still have fun with that in self directed IRA's. Remember too if it was on this thread, you're still going to short sale the property. You sign a document that releases you from all obligations of that loan. Amortization is a thing. The bank likely has no potential loss if you paid for 3-4 years. And they waive the right to come after you because they got most the money back.

Fact is lending is a business transaction. There's always a risk. Think of a restaurant. They make you food assuming you're going to pay. Well some people eat and drink and don't pay if service was bad or the food sucked. I've never done it, but it's perfectly legal. It's different law but kind of the same concept. Or think if you ordered a computer monitor and it was broken. Obviously first try for a refund or replacement, but you're not paying for it, that's for sure.

None of this is necessary though if you just don't over do you debt to income on a house. Our income is above our debt on our house. I'd never go above 3x's income to price on a purchase. You make $100k, a $300k property is the max you should go after. And as the price gets higher I'd cut that back to 2x's. With the 3x's rule I could afford a $1.3(ish) million dollar home. Hell no.

There are so many variables. The problem is education. 60-70% of people will own a home in their life. Guess who is teaching them about it? Realtors. Guess who taught the Realtors? Nobody besides a state licensing process an ape could guess its way through. Most realtors are not even college educated in anything worth while.

We need to fix education. No high school student should graduate without a real estate course and a banking/investment/credit type course. All the fluffy stuff should be extracurricular. Where I'm at FFA (Future Farmers of America) do all their shit outside the classroom. Same with 4H. It has to be in school though for this. No lobby is going to allow you to tell high schools what the real world is actually like though. They want you as blind consumers. It won't happen in our lifetime.

I'm not promoting defaulting. Just trying to educate people that it's not scary or bad. People kill themselves for defaulting on debt. Outside of mental illness, finances are probably the number 1 cause of suicides. It's just money and a score other humans just make up. I've had no money in the past and a lot now. I've seen my successful parents go bankrupt. Sometimes you have to just let go. The system allows you to say fuck it, I'm not paying. But you need to be prepared on how to handle it. High school and college doesn't teach you that. Never will....

Eric Holder says

Probably nobody. These rentals are probably sitting empty. I mean, look at that shit and its location.

My guess someone overpaid, and is trying to cover their exorbitant mortgage. Always a sure sign of a market on the decline. I watched rental prices for months before we got our house in Yuma. Made it really easy to tell long-time owners from those who over-paid.