At the end of 2017, I published this post on why we should start worrying about the housing market again. I’m updating this article as of where things stand on July 1, 2020. It’s time to start worrying about the housing market again.
The housing market in various parts of the country did start to soften in 2018 and 1H2019. Then by 2H2019, the housing market strengthened due to low rates and a strong stock market.
Now, in the second half of 2020, we should once again start worrying about the housing market. The reasons are clear: massive unemployment, shutdown economies, COVID-19, many jobs not coming back after the economy opens, and rising delinquencies.
In my Housing Predictions 2021 post, I state that the national housing market should soften by up to 5% in 2020, followed by a rebound to new record-highs in 2H2021.
Let’s go over some more details on why the housing market is in a precarious situation in 2H2020 and beyond.
Why We Should Start Worrying About The Housing Market
Despite publishing cautionary posts about investing in stocks, bonds, and alternatives at current levels, the biggest caution I should be writing about is taking out massive debt to buy property at record highs as of 1Q2020.
If you lose 50% on your stock and bond portfolio, you’ll be upset, but fine. If your property loses 20% of its value, however, this means you’ve lost 100% of your 20% downpayment.
In this scenario, you’ll also probably still be fine – if you don’t have to sell. But when property prices correct by 20% or more, many people become forced sellers because they’ve also lost their jobs.
I understand that millennials are coming of buying age and inventory is on the decline, making competition for buying a home fierce. However, only if you are fully cognizant of the following points I’ve highlighted below should you proceed with a property purchase today.
Things To Know Before Buying Property Today
1) Rents have softened
Given property prices are a function of rental income multiples, a real estate buyer should be looking to buy at similar pricing discounts from peak rental periods.
For example, research whatever comparable New York property you want to buy today that was sold for in March 2016 and aim to buy at a 14.8% discount to the March 2016 price because that’s how much rent prices are down.
In 2017 I experienced softening rents first hand when I tried to find replacement tenants for my SF rental house at a similar rent of $9,000 a month. After 45 days of aggressive marketing, I only got two offers, both for $7,500 (-16.7%).
I even hired a rental listing agent for two weeks to find people for at least $8,000 and he failed. As a result, I sold. Pricing pressure starts at the most expensive markets and works its way down. The large supply of condos in many expensive cities has really put a damper on rents and housing prices.
Buying at peak prices when rents have fallen from peak levels means you are paying a higher valuation. This is a dangerous scenario that can’t last forever.
2) Mortgage industry is very tight
Here’s what’s going on in the mortgage industry, which is as stringent as it has ever been.
Liquidity (Profitability) Concerns: A growing percentage of people are not paying their mortgages and banks are uncertain if and when payments will resume. As a result, his bank is only lending to the most financially fit customers.
Stricter Lending Standards: Due to liquidity (profitability) concerns, banks have significantly tightened lending standards. Here are some of the increased lending standards he mentioned to me:
- Temporarily stopped allowing for cash-out refinances
- No longer fully counting RSU values when calculating how much a person can borrow
- No longer including Schedule E income (rental income) when calculating how much a person can borrow – big shocker
- No longer approving Home Equity Lines Of Credit (HELOC)
- Minimum downpayment is 20%
- Raised minimum credit score to qualify for a mortgage to 680
In other words, lending standards are as strict as it gets. As a result, perhaps there is upside to real estate liquidity if there is a reversion to pre-pandemic level standards sooner.
3) Mortgage rates are back to record-lows
Despite a tight mortgage market, mortgage rates are actually back down to record lows.
My last mortgage refinance was in 4Q2019 when I locked in a 7/1 ARM jumbo ARM at 2.626%. I was pumped!
However, in 2Q2020, I was able to get preapproved for a 7/1 ARM jumbo mortgage with a 2.125%. This rate is absolutely nuts. I could have got a 30-year fixed rate mortgage for 2.875%, but I don’t plan to have the mortgage for longer than 10 years.
To take advantage of record-low rates, everybody should get a free mortgage quote at Credible. They are one of the largest online marketplace where lenders compete for your business. All the quotes are free to use as leverage against one another.
4) Prices have surpassed their previous peaks in many cities
While every city is different, if you look at the prices in Denver and Dallas, you’ll find that the prices are roughly 45% higher than they were in 2006-2007. This price performance is similar to San Francisco’s. Meanwhile, hot cities like Seattle and Portland are only about 20% above previous peaks.
The US median existing home price is about 12% higher than its previous peak, which is a modest rise since over 10 years have passed. As a real estate investor, your goal is to invest in markets that have both underperformed and have the potential to catch up.
5) Tax reform takes time to negatively impact housing prices.
Conceptually, we all know that limiting state income and property tax deductions to $10,000 and limiting mortgage interest deductions on new mortgages up to $750,000 are net negatives for expensive coastal city real estate markets. However, it takes 1-2 years to start feeling the crunch of tax reform.
Think about it. Let’s say you own an average 3 bedroom, 3 bathroom home for $1.5 million. Your property taxes alone cost $17,000 – $20,000 a month, depending which state you reside. Let’s say you earn $120,000 a year. You’ll have paid $6,000+ in state income taxes. In the past, you could have deducted the entire $23,000 – $26,000 from your income. Now, you are limited to $10,000 in deductions.
Some will argue that lower income taxes will offset these deduction limitations. Perhaps. But nobody really knows for sure until 2019 tax returns are filed and accepted. Tax reform is a headwind, not a tailwind for coastal city property price appreciation.
6) Inventory is slowly creeping higher while rents are flatlining.
The construction boom we’ve experienced over the past several years is finally showing up in the data as a wave of new inventory hits the market. When there’s more inventory, pricing comes under pressure.
Although inventory is still historically low, it’s important to realize the inflection point we’ve experienced in mid-2018. In just several months, the amount of inventory is back to where it was at the end of 2012. If the trend continues, we could quickly get back to 2008-2010 levels.
Interestingly, after the shelter-in-place rules went into mass effect at the end of March 2020, inventory dropped way back down. This bigger drop in inventory than demand has helped real estate prices stay strong.
7) It takes a while to recognize a peak.
The housing boom that began in January 1996 ended in March 2006. But it wasn’t until the beginning of 2008 that people started to accept that the housing market had already peaked.
Until 2008, property investors were still clinging to hope or at least were in denial that prices would no longer be going up. Once Bear Sterns was sold for nothing to JP Morgan in March 2008, people started to panic.
Then Lehman Brothers went under on September 15, 2008, a full two and a half years after the housing market peaked. And things got even worse, with the S&P 500 finally bottoming out on March 9, 2009. At least as of 3Q2020, we already experienced an aggressive 32% decline in the S&P 500 in March 2020.
Below is a great chart that shows how badly housing prices corrected in some of our major cities. Notice how the previous boom lasted 10 years and the crash lasted 5 years.
8) The stock market crashed
We saw a violent 20% sell down in the S&P 500 in 4Q2018. Then we saw a 32% decline from peak-to-trough in the S&P 500 by March 23, 2020.
From policy errors by the Fed, to trade wars by Trump, to slowing global growth, to a potential war with Iran, to COVID-19, to a global pandemic, companies everywhere will be more cautious on their spending in 2021 and beyond.
Incredibly, the S&P 500 rebounded strongly by 2H2020 and the NASDAQ is now at an all-time high. Will it last? It’s hard to say.
Just know that prices tend to revert back to the mean or overshoot on the downside very 4 – 10 years. Real estate takes 2-5 years to correct, so there is no rush to buy now.
Recognizing Signs Of Housing Market Strength
Although it’s good to worry about the housing market again, let us also recognize that the housing market has stayed strong as of 2H2020 so far. The reasons are:
- Record-low mortgage rates
- A strong rebound in NASDAQ and the S&P 500 from their March 2020 lows
- A rotation out of volatile stocks into stable real estate
- The implicit guarantee by the Federal Reserve and the Federal Government they will continue to do whatever it takes to support the economy
If you can buy a home for 5% – 10% below its 2019 or February 2020 peak, it will probably feel like getting 15%+ off due to a collapse in mortgage rates.
Below shows a massive rebound in mortgage-purchase applications in May 2020. The rebound will likely stay strong so long as rates stay low and the government keeps supporting the economy.
Buy Real Estate Responsibly
The mass media and the real estate industry will focus on strong demand, strong job growth, and a dearth of inventory as drivers for higher property prices in 2021 and beyond. That’s fine if you can surgically buy in strong job cities via real estate crowdfunding. If you look at property nationwide as a whole, prices will probably soften in 2020 before rebounding in 2021.
There are more deals to be had in expensive coastal cities like New York. However, I think it’s best to look to the heartland instead. Valuations are much cheaper and net rental yields are much higher.
If you’re dying to buy a primary residence today, make sure you can withstand a 10-20% correction over a five year time frame. It’s always good to plan conservatively.
If you don’t have a financial buffer equal to at least 10% of the value of your property after putting down 20%+, then you are not financially prepared for a downturn. You need to try and buy at a price that is at least 5% lower than the previous comparable sale price.
Too much debt is really what will kill you if we ever return to hard times. Buy a house to enjoy life instead of looking to make a profit.
I doubt we’ll have a correction as violent as the last one given lending standards became far tighter after the housing crisis. All the same, please buy and borrow responsibly.
Real Estate Recommendations
Real estate crowdfunding: If you don’t have the downpayment to buy a property, don’t want to deal with the hassle of managing real estate, don’t want to tie up your liquidity in physical real estate, and are looking for real estate diversity, take a look at Fundrise, one of the largest real estate crowdsourcing companies today. It’s free to sign up and explore.
Refinance your mortgage ASAP: Check out Credible, my favorite mortgage marketplace where prequalified lenders compete for your business. You can get competitive, real quotes in under three minutes for free. Mortgage rates are down to all-time lows! When banks compete, you win.
Would be great if Financial Samurai were to update this article with the impact COVID, people losing jobs but getting mortgage forbearance, etc is having on the current real estate market!
it dosent take a genius in marketing to realize that while lower income housing might be effected the majority will not. The financial institutions are not in the same position they were in 2008. Waiting for it to all fall down for housing will not be happening on any scale close to the past.
The average increase in price will stabilize but won’t drop prices much.
Check out these recent home sales: https://www.financialsamurai.com/real-estate-outperformance-examples-during-a-coronavirus-pandemic/
Bullish!
I also think same prices might not drop . And I see home builders strategy changed compared to previous years . They keep on increasing the price of new construction price for every 2 homes they sell. I noticed 65k increase in 2 months for the same floor plan . Builders are making new homebuyers to race. I don’t know whether it’s legal to increase the prices in just few weeks. And noticed new construction sizes are getting smaller with more price. Not sure the prices go down as long as interest rates are down. But surely home sizes go down.
Home prices are so far pretty strong around the median price for each city or lower. However, once you get to home prices 50% or above the median home price of the city, there is more weakness.
I also think same prices won’t drop much. But home sizes will drop in new construction. I noticed 65k price increase for base price of same floor plan in 2months. builders are wantedly not releasing more lots. Releasing few at a time at making new home buyers to race and increasing base price of house for every 2hoises are sold. Not sure it is legal but this strategy makes buyers more nervous psychologically and rushing to buy new home even though they might not afford it. Thinking interest rates are low and fear of price increase of houses. This shows prices might not drop much and goes little bit up and new house sizes are getting smaller.
This is going to be a much bigger crash than the last one. Smart people better sell now while they’re still suckers out there. Even the best stocks have fallen 40-50% in 3 weeks. This government/media created economic disaster is going to get worse and worse faster and faster. You can’t shut down the entire world economy and expect anything other than another Great Depression on steroids. Far mor people will die of starvation, crime, lootong, murder, homelessness and disease because of this super depression than from the virus.
Im ready for the house price to dramatically fall and I’ll pay cash for maybe 2 properties. I’ve never owned a home just save my money. I just hope I can get a better deal than these over inflated home prices.
I definitely plan to buy another house in cash as well.
maybe the prices will not come down much…lots of folks with the same idea.
That’s not what I was seeing watching the market in my city for the last year and a half. Even before Covid-19.
A lot of the properties on the market were people who…
a) Bought in at the high point (2017-2018) and now realize that they over paid.
b) Panic bought at that time (fearing they would be priced out of the market) and overstretched themselves. This is a pattern of behavior that we saw in the lead up to 2008 also.
c) People who have missed the boat on selling their property at the high point and are chasing the market.
Hence the amount of properties on the market that were priced too high and just sitting. If people were not biting before they certainly won’t be now. Prices will have to drop significantly.
Many people who might have been “having the same idea” before the pandemic will now not be in a position to buy, due to loss of income/net worth etc. Even if the market drops.
Hoping for another opportunity here too. Back in 2011, I didn’t have much spare cash after I paid the mortgage on my primary residence and my other expenses. Therefore, the LA market was too much of a stretch, but I ended up buying a REO in Lake Arrowhead for 89k. It’s done pretty well in terms of ROI and been consistently rented out. This time I want to find something in Los Angeles.
People really.not gonna give a crap about the housing market..people are tryin to get to the real.market to get food and supplies without getting spit or coughed on…at some point none of the greed will matter.money won’t even matter…people just trying to live another day..
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I don’t see that happening. Look at northern Texas for example. If there’s been any change, prices are soaring. The middle class will be locked out eventually. My parents’ old house in Irving was $185,000 just 8 years ago. It was a falling apart piece of junk from the very early 1980s with ugly popcorn ceiling, very loud a/c, tired looking kitchen, ugly wood panel walls, etc. Now it’s valued at a whopping $290,000. In just 8 years. So at the current rate, it’ll be worth $305,000 in a year and $320,000 by 2022. And with the virus ruining people’s businesses, it’ll only ensure there will be no middle class. What’s $100,000 worth these days? It’s worth hardly anything. You can’t even buy a 900 square foot home with a garage for that much anywhere in Texas! You’d have to drive 90 minutes out of all of the major AND minor cities to see even a slight drop in prices. Worse, prices won’t drop because the homeowners stone cold will not bargain even if the house was on the market for 7-8 months. Their attitudes are the same: why should I try to sell to you if I can wait a month and get $2,000 MORE than what the house is worth from a yuppie? That $30,000 a year job suddenly doesn’t sound so good.
What I recommend homeowners, fight the system. Every year protest your property taxes, it is a right that every taxpayer that owns a home has. I helped people in Texas and hopefully around the Country empowering them with relevant information that could reduce and control their property taxes. We need to make our own bailout..
What would you suggest regarding a new construction cabin flip in a up and coming tourist area, for right now? Hochatown (Broken Bow) Oklahoma
I am disgusted with our nation’s housing problem. It makes me ashamed. Any attempt people find to live affordable such as tiny homes or rvs is treated with contempt. I am a full time RVer and a professional gainfully employed in child custody work and I’ve been told by city employees (when renewing plates) that I am homeless and then treated like trash. It’s disgusting that counties cant be more open minded to alternative housing options for people. This should still be the land of opportunity but instead it is the land of judgement and the all mighty profit at the expense of promoting an american dream for all. If I could to move to another county, I would. America is only great in some ways…
Well said, Luna! Any attempt people find to live affordable such as tiny homes or rvs is treated with contempt… and discouraged. The corrupted mortgage industry and the corrupted realtors’ profession can’t let you get free. Some wish American economy to go down, which in turn is assumed to teach us a lesson and force us into communist / socialist (“democrat”) government oppression, where everybody is kept so poor that they cannot rebel. If you think that democrat socialism is good for something, check middle class and poor people’s housing in China, Ukraine… and California.
The economic, debt-slavery is brought to you by the International Banking Cartels. Few people seem to be aware of their history and motives. Of course our mainstream media will never expose their nefarious techniques.
The easy money of the Federal Reserve that was created out of nothing and loaned to home buyers up until 2009 enslaved many to homes that they could not afford. Therefore, the housing market collapsed after that with millions becoming homeless with the loss of their homes.
So what did the Federal Reserve do? They reinflated the housing bubble again….to be repeated most likely in the coming year or two.
Moral of the story. Stay out of debt and don’t get caught in their web like an ant being preyed upon by a deadly spider.
And most of all….educate yourself about this criminal cabal destroying individuals and nations since the day the Rothschilds began their takeover of the banking systems of the world. You can read about this in: The Creature from Jeykell Island- A Second Look at the Federal Reserve by Griffin….and in Secrets of the Federal Reserve by Eustace Mullins. Both books are available on Amazon. Read them and share them with friends.
agreed.
I grew up on the west coast- lived in Vancouver BC, LA, San Francisco, San Diego, Seattle and a few stints in NYC. I moved back to the west coast in 2008. Seattle crashed hard in 2008/2009. Prices plummeted far below comparable cities like Vancouver, BC and San Francisco. At the time it felt like the City would ever recover, yet it did- and it exploded! We have since sold our Seattle home and purchased in another desirable west coast City. We own our home outright thanks to the 2017 Seattle boom. Real estate is cyclical but one thing is certain- over a 10-15 year investment , it will go up. Maybe not crazy up like what happened in Seattle and other west coat cities, but it will appreciate. Cities with amenities are a great investment. It comes down to simple economic supply and demand principles. Cities are becoming more and more desirable, with amenities, public transportation and JOBS and therefore there will always be a demand and so your investment is safe even if a recession occurs as long as the economy doesn’t completely collapse. If you are jumping into real estate for a short term investment or to flip, it can be risky. It doesn’t really matter when you buy if you are looking over the long term, it just matters that you can get in the game. My advice to millennials and (I teach our very young child) is.. to buy real estate as soon as you can. My only regret is that I never bought in NY or SF in the early 2000’s. Happy house hunting!
I absolutely hate when people say “it doesn’t matter if you’re looking to stay in the house long-term “. Of course it does, why…..well here’s some examples. 1) You hate the house you live in and now are stuck. 2) Your mortgage is outrageous. 3) You bought at the wrong time and could of had less of a payment. I’m guessing you sell real estate because everyone in that field says those exact words.
Attention wise buyers do yourselves a favor do not buy any property in this unrealistic and overpriced market! You will be paying 45% to 50% more than the real value of such property.
Zillow.com, Redfin and other major real estate investors are at the final stage of buying the last cheaper distressed properties and putting a little cosmetic work on them to flip those homes for double or even more than they are really worth. If you buy a home now you will regret it because the market is about to take a dip and it will correct the unrealistic prices that those investors are getting richer at on your account!
Wait just a little longer because in 2020 the market will take a dip and you will buy your homes for the right price and value!
I am a wise buyer and am also waiting because I refuse to contribute to those investors leverage lives they have from deceiving the hard working class Americans like us!
I agree that homes are overpriced everywhere. But my take on it is this… And i don’t hear this pov often. Everything is driven by the job market. With a job market as strong as we have today, it doesn’t matter if you buy an overpriced home. You just continue to make payments and live your life. However, you lose your job and everything changes. Look at the Government shutdown we had a year or two ago. Within 2 wks, we saw horror stories of ppl in financial turmoil. TWO WEEKS. My prediction is this–Once we see cracks in employment, you could see foreclosures in a way that rivals 2009.
Hey thanks for the article and comments. Can someone please help me understand the Columbus, OH market? I keep reading about these larger cities, but right now, even with Corona and job losses, Columbus is still thriving for those who have jobs and is an up and coming, growing city and inventory is low. I’d liken it maybe to an area like Charlotte. Homes priced in the $190-240ks have insane bidding wars and keep jumping up $5-$10k every 2-3 months, it’s ridiculous. A home in 2016 priced at $170k, jumped to $190k in 2017 and is now $240k. I just cannot justify buying a home I feel is worth $200k at that much of a markup. I have essentially been priced out of the market – on a STARTER home. Any thoughts on this market? Do I just need to be patient and wait it out? Are there resources you’d point me to to help me understand how the markets work?
Attention wise buyers do not fall into a trap of overpaying for a property in this unrealistic overpriced market.
Zillow.com, Redfin and other major real estate investors are buying older houses pitting a very little cosmetic work on them and selling those old houses for double or even higher then they are really worth. If buyers stop buying those overpriced properties the market will go down and will be forced to readjust to real value of those homes.
Wise buyers do not buy any property at this overpriced market! Wait because very soon you will be able to buy better properties at 45%-50% less from the unrealistic prices at this present time!
I am a safe and wise buyer that is why I am also waiting for thee right market, which will soon be here!
Hi, This is very helpful (thanks!), but having trouble with the timelines on when you wrote this versus some of the comments.
My wife and I live in a great neighborhood in SF with our 18-month old daughter and pay a whopping $5k/month in rent (gulp) for the convenience of being by her school and the shuttles to silicon valley (where my wife works) but our budget is pretty maxed when factoring in daycare costs (minimal savings). We are starting to think about having another kid but absolutely know we cannot have another and live in the city. Thus, our options are either move to a place outside of the city and find cheaper rent/childcare (or a cheaper neighborhood in SF, sure, but the childcare is prohibitively costly) OR buy a place. We were fortunate enough to save about $300k prior to our first child and want to live in the bay area outside of the city in a good school district with a doable commute (parts of Marin, Orinda/Lafayette, etc.). The timing would be summer or fall of 2020. Based on where we are with the markets today and especially the uncertainty out there (trade discussions, 2020 elections, etc.) would you wait and get another rental or buy something? Budget is probably in the $1.2mm to $1.5mm range… We would want to live there at least 5 – 10 years (if not longer) but are worried that there may be a major correction during that time and we jumped the gun… However, according to your article, we may actually have good timing? Any guidance would be much appreciated, thanks!
I wrote this article a couple years ago.
But I think 2020 and beyond is looking good.
See: https://www.financialsamurai.com/a-golden-opportunity-to-buy-real-estate-is-upon-us/
I’m freaking out!
I like in Broward county, FL. I own a condo payed $122k cash and would probably sell for $150-170k. Married with a baby, living with parents and would love to have more children. So a 4+ bedroom is the only option for me. Houses I’m interested in Parkland and Boca Raton(only good schools) are selling for $400-450k. I would more than likely be approved with tight budget. I don’t know weather to take a large mortgage now or 2020. Taking one now or later could mean thousands of dollars difference. I need to take the right decision. We have outgrown way over my 2 bedroom condo. Please help
No need to freak out if you paid cash for your condo and can sell it for a profit. Shouldn’t she be happy if the housing market is slowing and you want to upgrade? You get to pay less for your upgrade whoo hoo!
I’m looking for a modest priced home to buy in Vermont in which to live(I’ve lived here a long time but sold a few years ago). The recent RE market here has me concerned. Housing prices have skyrocketed in many parts of the state. It’s currently a sellers market here. Lots of sellers are putting serious junk on the market that they have been unable to sell in the past and selling it now. I’m seeing a lot of “aspirational pricing” and sellers don’t want to budge. Places that are non-habitable, need total gutting, seasonal properties etc are on the market for a lot. I’ve seen a number of homes sell quickly as the buyers agreed to forgo any home/septic inspection which seems risky to me. Some lower priced homes have gone on the market and are listed as “pending sale” within a day or so. Affordable homes have many offers within a day of being listed.
At the same time, rents have become unaffordable. While they are nothing compared to NYC, SF etc. salaries here are nowhere near those cities.
So, what do you think is going on here? Should I just try to wait it out and hope sales prices start coming down?
Planning to retire in Fort Worth. I was really amazed on the number of newer homes still rented in the Fort Worth-Dallas area from the 2008 recession. Housing prices appear to have doubled since 2010 +/-. What a roller coaster.
Any comments by local realtors, on past housing price declines experienced in the last 50 years and how severe the current housing bubble is percentage wise. Another words what to expect if the future recession starts next year and lasts 1.5 to 2 years?
Complete fear mongering, just like CNBC in late 2008 early 2009. They bought those companies at rock bottom as well as real estate.
First the 18yr real estate if applied towards the recovery of 2009. That puts a time stamp of 2027..
Rising labor cost & materials cost
Depleted foreclosure inventory
Baby Boomers, choosing to age in place
401k accounts up
A lot investors made money on bitcoin
A lot investors still accumulating gold
There is a lot of foreign investors as well… I’m not selling til at least 2024
You think after a 10 year bull market, 2019 is like the BOTTOM of the previous financial crisis?
A lot of investors made a lot of money on bitcoin, huh? OK.
I’m actually watching markets, not imagining the future, and all western markets are definitely down in a way that is new from the skyward march they were doing from 2012 on to last year, which was literally insane. THere’s no new tech boom to ride off of, this country is up to its eyeballs in debt on every level, boomers own the best real estate and will be forced to or want to sell it to enjoy retirement and travel, and yet, if they haven’t sold by now or don’t soon, they will be left in a mass of sad sacks, because this stock market is running on fumes and corporate buybacks, and is going to implode very nastily.
Good points about the dangers of buying homes. Do you think it’s still as risky now given Trump’s determination to keep rates down, and that new construction is lagging too? Rents have gone back up this month and are expected to rise over next 12 months. I’m still of the belief that once this slight 2020 downturn is done, the US economy will rocket forth!
Hello Sam,
I wish I had seen your information last year. My husband and I bought a large home 8/18 in Fresno area to move my aging parents in. They are now moving out and homes are not selling. How long do you think we will need to wait to sell without losing money?
I was surprised I didn’t see Denver on there more. As Denver keeps turning into the next silicon valley, more people are moving here for the great work-life balance. However, it makes buying a home difficult.
At this point, it’s almost worth buying a house in the current market because it just keeps going up. I’m terrible at predicting the future. lol
-Andrew
The real sad part, Society’s view of making large purchases has entered into the full blown mentality of “what’s my monthly cost”. Its like the car salesman question of “how much do you want your monthly note to be? Now its, How much do you want your mortgage to be for this $412 per sqft builder grade flip? Ignorance is bliss and its real blissfull here in Austin, Texas.
The fraud of the us empire is finally showing after 400yrs of hustling, huckstering, and endless delusional optimism whilst ruthlessly exploiting others. 2020 May be quite exciting.
Hello,
Currently I live in NY in a rented apartment. I am planning to buy a Multifamily or single family house in New York as an investment property and wants to rent it out . Because I have a plan to move out from New York to other state next year or following year . But still I would like to invest in New York market. I could put $110K down payment. Our family income right now $170K in a year with one child. Should I wait for the EXPECTED recession to hit next year 2020 ? Or Should I try Now to buy??
Which areas I should focus to buy property with 0 vacant rate and low crime ??
Sellers have been under crunch to sell fast. The golden era of milking cow on houses selling business has long gone. Market has been declining ever since for seller market. Of course some exceptional regional story is unique. I’ve made a software that tracks listing price vs. sold price for thousands of homes in many part of the country, and I have yet to see listing price held selling price value. In some part of the country it looks scary, and seems like seller wants out fast. How often do you see fed lower interest rate while economy seems just fine? That’s what they call calm before storm. Many new generations holding hope to snatch a house within next year or two, but that dream will shatter for many. That’s because not all have cash ready to dump, and best of luck banking a house on your job or loan. 14 to 18 months from now we will see blood bath, it will be slower and depressing housing market. Until then hold tight as much as you can. Cash will be king.
Do you have a github for that software. Would love to learn about it.
Hi there,
We bought our home in 2017 rather quickly with a VA loan in Buckeye, AZ. We would like to sell to be closer to family in Waddell, AZ that has 1 acre lots. Prices are high there and we worry about getting a good price for our current home. We’re anxious that we would be paying too much for the new property and we’re not sure when or if to sell the current property. The big drivers of the moving at all is the idea of having lots of space with no HOA and being a 5-10 minute drive from family. All in all following the market is confusing.
Thank you,
Brandy
Wanting to buy a single family home for my daughter in Minneapolis area. We looked a little prices are very high . Does waiting a year or 2 sounds like a good idea?
I think so. i am looking for an investment property, however, I will wait until the houses’ price get the correction
Hello, I have a daughter going to Jacksonville University and am thinking about buying a condo there for her 2-year graduate studies, she might work there in the 3rd year. It’s a seller’s market in Jacksonville Florida, there are multiple offers on listings, listings selling in days some in less than a day. Rrentals for 2 bed rooms run in the 1200-1500 month range, the reason I thought it would be a good idea to buy a condo.
What do you think about the Jacksonville FL market?
Great question, following this as well.
jacksonville is not a sellers market. all of florida (and especially in major cities/ coastal towns) has softened. look at sales figures for last 8 quarters- it shifted from seller to buyer late 2018/early 2019, with values slumping about 10-20% from their peak in lat 2017.
Now, one factor that DOES make buying difficult for local/US buyers is that there is still a number of wealthy foreign cash buyers looking for real estate investments, especially from China, the middle east and south/central Americas. As well as US transplants from out of state (also predominantly cash buyers), looking for their “dream home”.
Both of These buyers are hard to compete with as they tend to bring strong and higher offers, forcing some overvaluation to occur. Though these are the same demographic that will be first in line for foreclosure if/when the recession hits.
as your situation is not long term (7-10 years or more) my advice for you is to rent.
Hi, new to the blog here, but great information. What are your thoughts on the Utah marketplace with the whole Silicon Slopes boom? We are looking at buying a home and trying to rent our 2800 sqft townhome to help offset the mortgage versus selling and using that as a down payment. Thoughts?
Hi Sam,
My husband and I are looking to buy our first primary residence (we own a vacation house in the Sierra). It’s hard to find a liveable house for our needs that won’t stretch us quite a bit–we need a home office, room for elderly parents who will live with us 10 months a year, as well as our young son.
We both have high paying jobs and a 20% down payment for $1.75M house and great credit, but now worry that we are headed for another big recession. If we buy now and the market tanks, we could be out of jobs again.
We are looking to keep whatever we buy for at least 12 years, so a 2-5 year downturn won’t hurt too bad unless of course we lose our jobs (and no, we don’t have 10%, $175K in cash after we buy the home). Are we foolish to get into the market now? We lost nearly everything we had in 2008 and have just now recovered to a point where we can buy again.
Let’s just say, the fear is real for us, but clearly, so is the desire to finally own a home.
Forgot to mention, we’re in the Bay Area. Peninsula burbs, looking at 680 corridor and Half Moon Bay.
Whats a “high paying job”? You got secure contracts for 12 years with golden parachutes if your canned or deemed obsolete?
A $1.75M home is affordable if you’re making a million a year. If you’re making 150K a year combined, good luck with that one.
Just because you have a “high paying job” today doesnt mean you’ll have one tomorrow and a expensive house, which is equally expensive to own, will make quick work of savings in a unexpected event.
Thats the problem with everyone today, buying things and never taking into consideration that things can and will change.
Is it any wonder that real estate investors never have any problems finding motivate sellers?
A story heard time and time again, bought because they were making good money but then job loss, medical bills, Illness, divorce, and whatever else and the house is sold for pennies on the dollar and the investors with cash to buy rake in the gold for nothing.
Sounds like you’re emotions are guiding you to ‘finally own a home’ you are forgetting one thing…..A home owns you……..
Appreciate feedback but your tone is very condescending, and I’d bet you have little understanding of the Bay Area market.
Home ownership in the Bay Area is tough b/c the homes are so expensive, but with the “home owning the owners” comes a lot of reward. I have witnessed ZERO friends or co-workers lose a home, but rather, make a lot of money in a very short time (3-5 years) b/c our market has appreciated so quickly. Home ownership has bolstered their wealth significantly, not threatened it.
Had we bought the home we rent now when it was offered to us at $1M 10 years ago, the mortgage was so low (by our standards), even with our job losses we would have been fine, and we would have gained $1M in equity. Yes, with zero improvements, the house we rent now is valued at $2M!
So, renting proved to be a risky proposition that didn’t pay off. Owning is risky too, but I’ve watched everyone I know who owns see that risk pay off. So it’s not just emotion speaking to me…it’s dollars and cents too.
Go catch the falling knife then. The property appreciated 100% in ten years, so it should do it all over again, right? I mean, there are SO MANY millenials (Gen Xers who can already bought homes for families long ago) with 4 million dollars 5-10 years from now!
Go buy the 2 million house. Do it. See what happens. Why would ANYONE buy a 2 million dollar house? These days you don’t want to be on an ocean unless you plan to eat a tsunami. Look at the Bahamas, look at eastern Spain. I bet there were a few 2 million dollar homes there turned to wreckage.
2 million dollars. You sound like such an American woman. The dude caught with the 2 million dollar mortgage should take his 1 million dollar share and catch a fast flight to Thailand, or move to Portugal and live like a king with an eastern european import that he doesn’t marry. Buy a bar, cover your expenses, and have a party every night. SF is a BORE. One restaurant after another, no interesting club life left, just a snoozefest with people so fleeced by developers they do nothing fun, and the homeless run riot. Same is true in Seattle, though there is still some life left, not much.
The Bay Area is such a bore. I remember partying there when it was fun years back. It’s a dump now, heinous commutes, ridic prices on everything, and people who really want to convince themselves how great they have it.
If I was going to do CA, I would go to Santa Barbara, not exactly cheap, but at least the SoCal beach culture is still exciting and you get your money’s worth. The only part of the bay area that nice is Half Moon Bay, and it’s cold in comparison to So Cal. Hell might as well move to Hawaii and get good weather constantly until you get sick of it and want to go skiing.
I tell you something, below a certain age, NOONE gives a f*ck about that level of expensive house. Sounds to me like a liability to worry about night and day. The only possible reason is if you are making a sheitload of money and have kids. Even then, there might be preferable alternatives.
wow well said common sense beats spreadsheets every time
that paw up was for raptap common sense
“looking at 680 corridor and Half Moon Bay.”?
Shelly, I’m a real estate & mortgage broker in San Jose.
I don’t know if you may consider my real estate & mortgage services?
It sounds like the Dallas market is overheating, but I have been struggling to find some definitive metrics. Doesn’t look like the same severity of Denver.
If I were to buy a home, it would be somewhere in the $300K range and I would want to rent the other bedrooms to pay for the mortgage. Where I am at right now, I would have to sell some stocks to pay the down payment, and I am probably a bit shy of the 20 + 10. Should I be biding my time instead?
Hi Sam –
I’m in the Bay Area and my husband and I are weighing our options about buying our first house right now. I’m wondering if we should stick it out longer in our rent-controlled duplex even though we are starting a family and things are getting tight. Moving to a bigger rental would wipe out the saving gains we are making currently. We’ve saved about 10% and can use a mortgage assistance program for teachers that matches the 10%, in exchange for 25% of the appreciation when we pay back the initial investment. We are hoping for a duplex or in-law situation so we can get rental income to assist with the mortgage.
TLDR: Life circumstances are pointing towards buying in an expensive Bay Area market, but given an impending down turn and lack of your recommended 20% + 10% in savings, is it better to wait?
Hi Crystal,
The bay area real estate market softened by about 10% in 2018. We’ve rebounded in 2019 as rates have collapsed and people are getting liquid from the tech IPOs starting in 4Q2019.
I think the anxiety of not having enough down and having a higher mortgage payment will be worse than the anxiety your feeling of missing out.
Feeling extremely tight on money is a really bad feeling. There is more inventory now, so it’s worth looking and trying to get a bargain on some stale properties.
S
Hi Sam – thanks for this really insightful and well-researched post. We are Bay Area condo owners looking to upgrade to a home (Oakland/East Bay). We have pretty specific requirements, so only a small subset of the available homes are within scope for us.
We definitely are seeing the market soften, but more often than not, homes (within our criteria) are getting pulled from the market instead of the price being dropped to align with what buyers will actually pay. It seems that the slowing market is not yet recognized by sellers. But, when will they realize they aren’t going to get appreciation even beyond the 2018 highs? I would imagine that at some point, some sellers will just need to sell at reduced prices, but I’m generally not seeing that yet.
Any data/insight you can share on this trend, how long it might last, etc. Or, am I just wrong on my observations?
Another point on this – it seems that many homes were bought 10-20 years ago, so while the sellers stand to make a lot of money off appreciation, they also may not feel any pressure to sell now.
Your observation is correct that the SF Bay Area market is slowing as inventory is rising.
I think a lot of people have A LOT of equity in their homes, and will simply just take their homes off the market if they can’t get the price they want.
See: How The Tech IPO Boom Could Cause SF Prices To Fall Further
It’s really supply that’s the big variable.
But I expect Spring 2020 to be strong again given the tech IPO lockup periods are starting in Nov 2019 from Uber, Lyft, Pinterest, etc. And a handful of people I’ve talked to there ALL want to buy property and diversify their net worth.
Bottom line: I see a 10% – 15% pullback in SF Bay Area property max. Now and through Winter 2019/2020 is probably a great time to start looking.
Related: The Best Area To Buy Property In San Francisco
Thanks for the quick reply, I appreciate it! I’ll read the link you shared, too.
I have read that the IPO lockup periods are less important because a lot of banks will loan money to early employees in advance – so, while they have a lockup period, it isn’t as much of a barrier as in the past….
We’re specifically looking to house hack with an income unit, so any thoughts on how rents will change over the coming year? Over here in Oakland there are thousands of units being built, though generally very expensive and only in a few areas. One could argue that other nice neighborhoods that don’t have as much supply will still see rental appreciation, especially as more jobs come over to Oakland and more people see it as a real alternative to SF (not just a cheaper alternative).
Back to your reply, I was thinking that going into 2019, we’d see more supply on the market as people saw just how much they could sell their homes for – and while we are seeing more supply, there’s less motivation to just sell and liquidate than I would have expected. I would have thought that someone who’s been here 20-30 years, ready to retire, would just say – I’m making enough to move anywhere, live comfortably, regardless of whether I get asking or even 10 percent less than asking. Sometimes mentally “cashing the check” will lead seller to be more motivated, or an assumption that prices will go down in the future will too (sell now at a slight discount because tomorrow the discount will be even more) – but, this does not seem to be happening at all, and based on what you say, sellers may just be able to ride out the down cycle, even if it lasts a few years… The other trend – with very renter-friendly policies, do those homes sit vacant or get rented out? Still not sure about that either.
Thanks much!
How’s it going now?
I’m curious. We bought in May 2019 and read articles like this and it feels all silly.
At the end of the day, there’s tons of people sitting in the sidelines waiting for “a deal”.
Tech companies are still booming. Yes your uber and lyfts are big names….but look at tall the other stuff. Molekule, coconut water- freaking everything still has a ton of growth in the area, and still no new development in most cities.
It’s a supply issue, driven almost entirely by prop 13. Why sell for a $1M profit if you put your profit into a new home with a huge tax base and end up paying more per month?
All the boomers are locked in until they die or move out of the area. And all the tech people are waiting in the sidelines to get into the game hoping for a crash….but the only crash that’s coming is if the tech market tanks jobs…but even then most of those people don’t own homes, so it may not even affect housing much unless there’s some big exodus of the area….
Sure I get nervous that we “bought at the wrong time”. But I’m 6 months into a mortgage now and things have been mostly flat. do I wait 2-4 years and hope they go down while paying rent or do I just buy the house and move on with my life? I just planted my first garden today… love it…not everything is about maximizing your asset valuation….sometimes you just need to assess what you want
Are you able to sense where the SF condo market will be in Spring 2021? What percentage pullback from 2019 prices are you anticipating at that point? Thank you!
imo? (ive been buying and selling homes for over 35 years) – WAIT. please wait. potus is selling off usa industries. farms, steel – both will bankrupt. he’s hollowing out what little healthcare support americans have – pple will lose their homes. his ridiculous trade war is going to result in raised prices on goods and he will begin war in iran which will explode the price of gas & oil. his approach to immigrants will also affect the economy in multiple areas: via incoming students, people seeking internships, people seeking to immigrate – all of these numbers will decrease exponentially, decreasing USA’s net worth/income. imo – wait. wait 1-2 years. you will be able to get pretty much any house you like for 30% less at least. within 3-5 years I believe 20%-30% of homes will foreclose or be on the market. sit tight. usa is in for a huge reckoning – the upside is you’ll be able to get a home for much cheaper. i would defin
I’m trying to find data that supports your thoughts about home prices dropping. We want to buy a house but can’t stomach the prices of even small homes in our area right now. We hope prices drop, although of course, we don’t want it to have to come at the expense of others having terrible hardship! Do you think the prices will drop everywhere? We live in the suburbs of a major metro city on the east coast (not NYC). Just looking for some hope that someday we can get a nice home within our means!
You’re full of poopoo, Amy. It’s not POTUS’s fault that a 3bedroom 2 bath on 3,500 square feet plot of land in Long Island sells for 700k. The markets are infalted because all the high paying jobs are in big cities and millennials are flocking there to be the next big tech firm.
The housing market will crash for sure, but it wont have anything to do with POTUS.
You have a point to wait for 1-2 years. All the news about the real estate market specially the Bay Area did not factor in the massive layoff in the tech companies and their employees that owned homes. We all know very well that the trade war between US and China precepitated uncertainties both in the US economy and in the global market and it spells R-E-C-E-S-S-I-O-N. It all boils down to this: if there are no demands on the companies product and their stock tanks then the layoffs begin. I sense that before the end of this year there will be a lot of tech people with a very sad Christmas.
Why does your data seem so different than what’s out there on the web? For example for Chico, Zillow says:
“Chico home values have gone up 13.6% over the past year and Zillow predicts they will rise 8.4% within the next year”
I understand the prediction could just be a formula they have and you’re doing a much deeper analysis, but shouldn’t the home appreciation be aligned? Your table shows that home appreciation is down 26% in Chico which is the opposite of what Zillow and some of the other mainstream real estate sites show.
Not sure if you are familiar with the Boston real estate market more specifically South Boston, but it is the place to be for the younger people in the city. Prices for rentals and condos/houses for sale have increased dramatically over the years. There has also been a ton of apartment buildings going up all over the city that are 2k+ per bedroom. I am curious to hear your opinion about the Boston market and whether it is a bad time to buy there? At some point I feel like there will be more supply than demand.
Boston will be ground zero for the next downturn.
what about milpitas ca?
What do you think of the housing market in las vegas,should I buy now or keep renting.?Iam currently renting a 3bed/2ba $1400/mo.If I buy
House in this area mortgage goes around $1800/1900,but my rent will go up for sure this year at the end of my lease.When do you think prices will go down in vegas?
Inventory is going up in Vegas and Vegas has been one of the fastest appreciating markets over the past several years. I would bide mine time. Hunt for deals in the winter!
Hunt for deals in the winter??? Yeah that will be what, a 2 percent savings MAYBE??
Seasonal hunting is delusional, the prices of housing right now is crazy.
How do you think the upcoming IPO boom could affect the housing prices in Bay Area? Mainstream media says they’ll send the prices through the roof, but some folks disagree. What do you think?
I think it’s going to have a small impact. I think for San Francisco, you want to be buying single-family homes on the west side under $2 million. That is the sweet spot that is going to see huge demand.
https://www.financialsamurai.com/how-new-tech-ipos-could-actually-accelerate-the-decline-in-sf-bay-area-real-estate-prices/
Hi Financial Samurai: I wanted to get your thoughts on how the housing marked is shaping up for this Spring season. Are you expecting home prices to increase, stay the same or drop? My location is Boston, MA. Thank you for your valuable feedback!
do you know if the Los Angeles/Southern California housing market is following in the footsteps of San Fran’s weakness yet?
Always hard to time the market, but I was considering selling my condo, perhaps renting for a couple of years and then buying back in.
I’m in LA. For the last year, I have seen people chasing the high market of 2017-2018 and it’s not happening anymore. These have been my observations from monitoring the current inventory.
1. Most of the properties have been on the market for at least 3-6 months. The owner may drop the price 15-20k periodically, but at the 1m plus price point, that is not going to change anyone’s mind.
2. If you look at the property history, many *new* listings are simply properties that didn’t sell (for example) 6 months to a year ago. They are now trying again at the same price that it didn’t sell for last time they listed it. Clearly wishful thinking.
3. Of the ones that are getting offers, they are often “contingent and accepting backup offers” and then I see them relisted after the potential buyer cannot remove the contingencies for whatever reason.
4. I have seen about 6 properties that have gone into “pending” status in my area and then been relisted. I can only speculate that the buyer is getting cold feet or couldn’t secure financing. Maybe a couple had “deal breaker” issues that came up on inspection but it seems unlikely that all of them did.
I keep seeing articles saying that LA is a hot market right now, but my own research is contradictory. What I am seeing is that anyone who wants to sell will have to lower their expectations significantly. I would not sell in this market unless I absolutely had to. I want to buy a multi family and I am waiting to see what the market does. Although I don’t think we will see a drop like the one preceded the 2008 recession, it makes sense that if people are not buying then prices have to drop.
It is the subprime mortgage business, which was a creation of Democrats and leftists. It was based entirely on leftist ideology, and that is that life is unfair. ‘If somebody can afford a house, everybody should be able to be in a house. It’s not fair that some can’t own a home. Not in an America that’s just and moral.’ So we had to come up with a way because market economics doesn’t work that way, because not everybody is equal. No two people can ever be equal if there is indeed genuine free will and freedom. It’s not possible. But that doesn’t stop the left. So it was created with, whatever, the Investment Redevelopment Act or whatever the name of the laws were. The banks were forced to make loans to people who could never pay ’em back.
In fact, loans were structured with no down payment. It was only principal that was being retired, and these loans were then sold. These worthless loans, these worthless mortgages were then sold to whom? Fannie Mae and Freddie Mac, who insured them — and guess who it is that’s not being reformed in any of this so-called financial regulatory business? Fannie Mae and Freddie Mac. Guess whose executives — and not just executives. A lot of people at Fannie Mae and Freddie Mac were also ‘Friends of Angelo’ who got sweet deals on their mortgages from Countrywide, along with Chris Dodd and Barney Frank and all the rest. So these greedy banks who were forced to make these loans to people that they knew were never gonna pay ’em back, had to come up with ways to turn something worthless into value.
So they came up with ‘Mortgage-Backed Securities,’ and they came up with ‘Collateralized Debt Obligations,’ and who the hell knows what else, and they started selling them to each other as insurance policies. Then Fannie Mae and Freddie Mac come along and buy up all these worthless mortgages and thus guarantee them, all because a bunch of liberal Democrats were buying votes and making sure that people who had no business owning a home owned them. Of course they couldn’t pay the utilities. They couldn’t pay to furnish them. They couldn’t do anything. So that was handled too with other loans that didn’t cost them any money for other things. That’s the foundation of this so-called meltdown. So we had a bunch of ‘toxic assets.’
We had a bunch of worthless mortgage loans, a bunch of worthless paper. Well, these people circle the wagons for each other, and the people in government (Hank Paulson and the rest) circled the wagons for them, and created this notion that we were going to have a worldwide financial economic collapse in 24 hours if we didn’t bail these people out and come up with ways to pay these toxic assets, or make them worth something. Hence TARP was born. But the first vote on TARP failed. It was two weeks before TARP was actually voted on, and in the two weeks we didn’t have anything near a financial meltdown. We were had. It was a giant, 100% scam.
And it was all based on the fact that the powers that be who created the problem had to then make their buddies whole so that they didn’t lose their homes in the Hamptons or in Aspen or wherever the hell else they have their second or third homes. So they had to bail out these people. These people who are creative on Wall Street had to come up with ways to make these worthless mortgages worth something, so they created all this stuff. You can talk to some of the people that were involved in this stuff at the time and they knew that what they were doing was ridiculous. They knew that most of it could not even be explained, much less understood.
They knew at some point the bubble was gonna burst on all of this because the only thing that kept this fraud alive was the continuing escalation of housing prices, real estate values. Once that bubble burst, the dam broke, and everything fell to the wayside — and that’s when the ruling class got into business and said, ‘We need these bailouts here. We need these bailouts there, because we need to make these people whole.’ The financial crisis was going to destroy the people who engineered the scam, and they had to be bailed out. ‘Financial meltdown’ implies that every aspect of our capitalist system fell apart, and it didn’t. That’s why we’re in the mess that we’re in now, because enough people were convinced that capitalism was corrupt and capitalism by design failed.
So all of a sudden now a whole system on which the greatest nation on earth was founded and operated is under assault, when in fact capitalism didn’t fail. Central Planning and command-control economies with subprime mortgages (and their creation and their demand to be implemented under fear of federal investigation) is what led to the meltdown. Liberalism! Socialism, Marxism, whatever you want to call it, that’s what led to the economic crisis that we’re in, not capitalism. You can say that these greedy bankers creating all these phony things (like CDOs, the Collateralized Debt Obligations or whatever) insurance policies, quasi that they came up with to try to give their worthless paper some value. They wouldn’t a-done it in the first place if they weren’t forced to make these stupid, worthless loans. No responsible person in the banking industry is gonna loan money to somebody that cannot pay it back and do it as a matter of policy.
They may have friends that’ll scratch their back like Angelo Mozilo. He’d give Chris Dodd a favorable deal on a couple mortgages or Barney Frank and the guys at Fannie Mae and Freddie Mac, but institutionally nobody’s going to give away money. It doesn’t happen! Yet it was happening. Banks and whoever else were giving away money, in effect giving away houses. So homes were being built that had no business being built because the people buying them really couldn’t. The whole thing was artificial, the whole thing was a fraud, and it wasn’t capitalism that did it. It was activist social engineering brought us started by Jimmy Carter, acted upon and enlarged by Bill Clinton, and then really amplified by Barney Frank and Chris Dodd. There were regulators who knew this, and there was the Bush administration who knew this and they tried to shut it down, and the regulators were impugned out of town. The regulators were harassed and threatened by members of Congress when they dared speak the truth about all this.
Deomcrats did not “create” sub prime mtgs. This was a Bush/Clinton initiative. I worked for the largest sub prime lender. Wall Street, comprised of both Reps and Dems wanted this paper as they were making billions. Don’t put this on the Dems. It was everyone’s fault. The gov’t, Wall Street, investors, home buyers, appraisers, etc.
What a load of BS! Before you post some other crap, read some history. Subprime was created by wall street, its as conservative baby as it gets, the greed that rules the world. If you cannot read, maybe you can watch a movie – big short – it clearly describes the idea of capitalistic greed behind the whole melt down. I did not think that there was someone so stupid left after 10 years of everyone explaining what happened and why.
Angela, Well said. Goldman fellows convinced Moodys to rate all crappy loans into one tranches from Triple B to Triple A which may appear as okay but all were subprime loans to go bust. If you read the US history, then its clear how the Fed Reserve act was created with the sole purpose of self regulating themselves without any oversight in the congress. JP Morgan is at the center of this crap. No matter who the President is(Dem or Repub), Goldman is at the top. These idiots don’t know much about the markets. All they worry about is giving bonuses in millions to themselves. As long as people like Ray(who blamed Dems for subprime mortgage) remain ignorant and uninformed, these big investment banks and firms will keep profiting and pass the losses to the ordinary folks. I wish everybody reads Michael Lewis’s The Big Short and Flash boys. People need to be outraged and those banks shouldn’t have been bailed out and instead broken down. Not to forget, Buffet owns(around in 2006) 20% in Moody’s whose analysts went by these firms when rating the crappy loans. Central Bank fellows(from UK) who were influential in drafting the Federal Reserve Act. Whereever central bank went, it only created income inequality. Here people knew that and that’s why there were no central banks until 1910 even though the top rich people tried to bring it to US. Since then, its always been the billionaires(not the politicians) who has been ruling the nation.
You’re a complete fool! You are trying to blame the massive fraud and resulting fallout of the Secondary Mortgage and Subprime mortgage market on Mexicans and Democrats, when it was Wall Street greed unchecked! Banks did bet against themselves! Just like terrorists actually flew the planes into the Twin Towers, in unprecedented actions against their own presumed self- interest. Inconceivable, but it happened. The banks also invented an insurance product to cover their downside, which they also traded as a stock. Banks bet against themselves somewhat unwittingly perhaps, given the relatively few people who actually understood what was happening in real time. Seriously, it’s so ignorant to try to inject right wing, fascist views into every subject.
People like you are why this nation is stuck in reverse, but the gears will be torn out and the transmission repaired. Keep delusion alive.
CNN just posted, PMI (Mortgage Insurance) is driving up cost of housing. lenders are now assuming no one has the 20% down are are blending it into the loan. A higher rate and a low PMI indicates that people “can achieve the dream” and buy the most expensive home they are approved for.
Bank of America will underwrite $10 billion in non-prime mortgages to non-traditional borrowers at a series of events across the country, according to a CNBC report. The company, Neighborhood Assistance Corporation of America (NACA) feels that “everyone should own a home by 2020”.
In 2008, Bank of America purchased failing Countrywide Financial for $4.1 billion which financed 20% of all mortgages in the United States, and all sub-prime at a value of about 3.5% of United States GDP, a proportion greater than any other single mortgage lender.
Trump has eliminated the Dodd-Frank Act for the’ “Choice Act”. University of Michigan Law School professor and a key architect of the Dodd-Frank Act, “It just seems like a recipe for a huge disaster,” he said. “Dodd-Frank put in place real guardrails against re-creating the kind of financial crisis we saw in 2008.”
We are now in the bubble expansion phase. Prices will increase, builders will build, but by 2020, the US Economy will enter a recession and by 2024 the RE market will break down. Unless those who are studying this at Harvard are wrong.
Citations:
https://www.mpamag.com/news/non-prime/bank-of-america-to-underwrite-10bn-in-nonprime-loans-113820.aspx
http://knowledge.wharton.upenn.edu/article/repealing-dodd-frank-whats-the-likely-fallout/
https://www.extension.harvard.edu/inside-extension/how-use-real-estate-trends-predict-next-housing-bubble
Thank you for this valuable information, and I hope you are right about the recession. I live in Miami, FL and it is impossible to buy a house at an affordable price.
Hi Sam, I live in Western Boynton Beach, Florida and am in my mid-thirties. I’m renting now but looking to buy a primary residence but all signs are showing this market is ridiculously high. Plus they’re all PUD developments so everyone basically has the same home. Most houses are $450-500k. I’m afraid, I’ll make the wrong move and buy in at the peak. Like everyone else I would the market to fall and THEN buy in. Do you or have any insight into this market and what’s happening down here?
I am in the same boat and have the same question as you….. did he reply privately to you?
I live and work in South Florida, and market is very soft now. I would not wait for lower prices, buyer market is booming.
What is your opinion/do you have any insight on the Austin, TX market? My parents almost bought when I was in school here in ’07, and prices have sky rocketed. I have put off buying for two years and have been pre-approved, but see mixed reviews on whether it’s a good time to buy or not.
WHO READING THIS HAS A MILLION DOLLAR MORTGAGE?! WTF?! Seriously. If you have a million dollar mortgage, I doubt you’re concerned if the price of your house goes up a grand a month….and if it does, you probably shouldn’t HAVE a million dollar mortgage. What a moron.
I honestly believe A LOT of people who shouldn’t have very high mortgages do…how else can people afford to buy in the most expensive regions? There are way too many people who just ignore it all and live with their million-dollar or half-million-dollar mortgages and hope all goes well and are concerned indeed to imagine their monthly payment going up much at all because they are stretched to the max, hoping that house prices keep going up so that someday they can cash out and make up for all the years of living hand-to-mouth despite high salaries–i.e., being “house-poor”.
Just the alarmed and amazed comment from Hancho should be a wake up call to all us bay area residents as to really how crazy it has gotten. Step outside the box for a minute and look in from the outside wow.
Lots of people in the Bay Area have $1M+ mortgages. They are probably dual-income tech families making a combined income of at least $500k/year.
I don’t think people realize the bay is another beast.
My wife and I made 105k betwene the two of us 5 years ago. Now we make 250k. There’s lots of growth here.
And no, not uber, lyft, etc. Just small tech companies. Tons of oppurtunities here.
Who knows, maybe it’ll crash. But if we keep our jobs and can afford the mortgage, what’s it matter? We’d just hold out. Sure we could’ve “timed” better in retrospect, but that’s always a fools errand. Were we supposed to pay 3.5k/month in rent for X years until we got a good timing in the market?
I do.
Wife and I make 250k a year between us before bonus, usually 270kish annual.
270 * 30 % = 81k/12 = 6.75k/month, which is $700 more than my mortgage+insurance+taxes.
After 401ks, expenses, and whatnot, we put about 4-4.5k in the bank a month.
I’m an accountant and she works in tech. 6 figures in the bay is pretty common.
The government will have to raise the rates back up if they ever want out of the mortgage business. There were 30 percent defaults in some markets during the last recession, and now we are to believe that 3 percent is a reasonable rate? HA!
Most real lenders today would not finance in places like SF and SV, Denver, Seattle, NYC, etc for less than 15% interest. And even that would be risky. One economic downturn and those million dollar studio apartment sized three bedrooms in Silicon Valley are going to lose half their value.
So, we get tax payer subsided interest rates though quasi government lenders.
It is similar to how they were in the bond market, and the FED will likely try to unwind their positions there as well. Expect seven percent interest and higher.
First, thanks for the great article! Just what I was looking for.
My situation: Renting a townhouse in Emeryville, CA for $2900/mo. I own two single family homes in Memphis, TN that I own free and clear, bought both for $50k, in 2010-2012, valued at $100k, net rent after expenses is $1k/mo. Also own a single family house in an Austin, TX suburb, purchased in 2016 for $120k, currently valued at $200k, and rents for $1400/mo; after mortgage and expenses +$400/mo.
I started purchasing single family homes in other states as investments because I couldn’t afford to buy in the Bay Area in neighborhoods where I wanted to live, my rental is affordable, in a great neighborhood and 5 minutes from my work. I’m 52 and planning to retire at 70.
My question: Do you think I should purchase a townhouse in West Oakland for $625k. Same exact floorplan and builder as the townhouse where I currently live and rent, just in the next town over. My living costs (mortgage, taxes, ins, hoa) would be about $1200 more -OR- should I continue renting and buy another investment home? I’m thinking of buying where I want to retire for $300k (thinking of FL), rent that out, pay the mortgage off in 15 years and then have a free and clear house to retire to, plus save an extra $1200/mo. I’m tempted to buy now, as I’ve already seen listing prices in the Bay Area drop, but it still seems that Bay Area real estate is overvalued and better values are found out of state.
I would love your opinion on this. Your logic about real estate in general and your knowledge of the market in the Bay Area seems spot on! Big thanks!!!
What are your thoughts on buying in Austin in 2019?
With the tech industry investing in Austin, I think Austin real estate will always be a good buy when ever you decide to do it.
Please everyone take your time study the etf symbol ITB .Look at 2007 and now look at 2018.If this follows the 2007 script then 2019-2022 will have a motor housing downturn.Also because of pensions the real cost of housing will get much worse because property taxes will sky rocket.Along with the new tax law .I think a complete collapse is coming because of DEBT!The stock market is a joke completely elevated by debt.Also in 1980 the Dow was 850 by 2000 it was 12000 and the national debt was 5 t.Today almost 20 years later the Dow has doubled because the national debt has more than quadrupled!This is insanity that people think everything is ok just unbelievable!
Joe, You are a genius. There are so many zombies on wall street. The high price of greed and stupidity is coming soon.
We are in contract for a property in San Jose for 760k, 3 bed 2 bath, 1,100sf. Mortgage 510k, rate 5.125. Should we back out, loose 23k deposit and keep our cash waiting for downturn or continue buying? It is going to be our primary home as we are current on a one bed room rent at 1,1k. Thoughts and advices are much appreciated