Kira - would be nice to see an article or possibly a Q&A with QTR about things to look for (or avoid) in a real estate agent. Have figured out a few based on trial and error over my time on this rock but any boost for an agent that seems to have their head screwed on straight would be appreciated.
Before the GFC meltdown 2% of loans were subprime. 350 billion out of a 17 trillion dollar total. It wasn’t really the subprime loans that cause the meltdown, it was the derivatives tied to those loans, and the re-hypothecation of those derivatives.
Today, NQM loans represent 4% of the total. Double what it was in GFC. And the bulk of those have been written in the past 2 years. What we don’t know is the extent of the derivatives and credit swaps behind those NQM loans.
In my view, the answer to that question is going to determine whether real estate prices drift slowly downward as layoffs begin and the economy worsens. Or crashes hard as those things happen and the derivative market turns out to be a repeat of the GFC.
Lastly, in the GFC prices peaked (national average) in September 2005, the FED did not began to lower rates until late 2007, the stock market crashed in September 2008, and again in March 2009, and again in May 2010. Housing prices started to recover in late 2010 to mid 2011, 4-5 years after peaking (depending on geography).
Based on the last crash, and a lot of historical data going back at least 130 years, my opinion is we have a long way to go before the bottom is in sight. (I know there are counter arguments that have many valid points. I just think they are wrong. Time will tell).
And you are talking about urban/suburban areas. Small towns and exurbs took a full decade to recover. I know, we bought in late 2006…yikes! Thankfully we weren’t planning to sell during that decade.
Not discussing any particular area. Just about national averages. I assume you were underwater if you bought in late 2006. If so, we were in the same situation. We said screw it in late 2010, arranged a short sale, and moved onto our 35ft sailboat with a 5 year plan. 2023 will be our 13th year on the boat. Now we figure we may never get off, and just jump overboard when we get to old. Since we are 67 and 66 that time could come sooner than we would like. LOL.
You are most welcome. I may have posted the link below already. But since I am not sure I’ll post it again. It provides a history of the up and downs going back 230 years.
"What can we expect to see once today’s record number of homes under construction hit the market?" - like watching a train wreck in slow motion....this is what I think I'm seeing on the Carolina coast; people and builders are still getting on the back of the train while the engine is going off the rails. Looking locally in my 'hot neighborhood', I've seen one of the limited supply of existing homes has slipped it's price and missed one contract closing over the past 4 months. This was a house previously purchased in summer '21 and renovated. I've got 2 neighbors who have sold recently with success (exact terms unknown), but they are long term owners (recent widows) who are (probably but unverified) deep in the black and moving into less home closer to family.
Just found out - one widow's sale fell through due to issues with inspection. This is a premium property with prime vista of the intracoastal across the first fairway / green on our golf course. A year ago, any buyer would have eaten a cat turd to close a sale on this property at her price. Fortunately, I think she can afford the cost of repairs, and has room to move in price and remain well in profit if she wants to 'allow for home inspection discrepancies' in price and save the headache.
I have a buddy here in Nashville that just closed a deal to buy 300 homes (Mid 300’s) in the Carolina’s from a National builder….. the builder was willing to take a 75K markdown per home…. The buyer is going to turn them into rentals - 5br homes in the $2K + range….. his plan is to rent them for a couple of years and then turn the around when the market starts to recover
thankyou for this article which i found very interesting indeed.......i sold a house in Dec 15/2021......it was on the market only 3 days and sold for a 100K over the asking price.....it was an older home with lots of fixing up to do......the big thing that sold the house was it had a big back yard which we kept well mowed and tidy otherwise the house...like i say...was an older home...needing upgrade.......forward now a yr later i believe if we were still trying to sell it ...it would have been a headache........we might have waited a very long time before it sold......
I think You are not idiot.very thoughtful.My guess going forward is that it will be fixed.I don't think the deflationary spiral will improve.Japan expects Santa Claus not to come.Stay healthy all my friend
What bothers me about this article is real estate has always been one of the ways to diversify away from the dollar (i.e. gold, etc.) and what I am reading is real estate is going to get completely buried under. With inflation and the upcoming depression...there are not very many alternative investment options and real estate is probably off the table for now....
There is manny real estate categories and manny different locations. Not everything is the same. Real Estate is still the best asset class to weather extreme economic turmoils, as long as you don’t have leverage. This is a lesson learned studying history of countries that suffer extreme crisis, however, nothing is 100% sure, for example real estate investors in Russia 1918 and Cuba 1959 had a total loss. Residential apartment buildings can be subject to rent control (and have been) in any city of the world. Some industrial properties con be idle for decades or forever.
The best category in real estate is without a doubt, good quality farm land. Farmland survived all crisis (except Communism) and even when can go down in value during a deflationary crisis, it will recover and will nearly always produce a cash dividend in the form of a rent, because people cannot stop eating. Among Farmland, there is a lot of sub categories, not all are the same. To make it simple, the safest is a farm in the midwest, with plenty of water, where you can do Corn, Soybeans and Wheat. You will weather any crisis, and if things go too bad, you can go there and farm it yourself. With the new technology is very easy today. I do not have life insurance or retirement accounts, I have farmland.
Have a family member that has done VERY well with farmland and would not hesitate to recommend it to others. The interesting part for me that I rarely hear people talk about when discussing real estate investing is that farmland usually has low tenant requirements if you want to manage the property yourself.
In the case of my family member it is just land rental, they do not provide any other materials. It is rented by local farms that farm thousands of acres of land and just need more acreage for soy and/or corn (depending on the year).
@Gonzalo - Thank you very much for your response. I honestly never thought of farmland as a real estate investment but it does make a lot of sense from what you have said. I have land in Tennessee but it is not agreeable to farming as it is on top of a ridge. It's more of a bug-out place. Iowa is too far for me but I can certainly look for land nearby in Tennessee. Best wishes!
There is very fine land in Tennessee or if you are close to Memphis, just cross the River and Arkansas has very good quality farms in the Mississippi Delta. I know the area well.
e.g. north vancouver rent hits $2400 for 1 bed unfurnished.
so, do the math - if you go to smaller markets next vancouver you can get a decent house north of Victoria, van island for 800k.
via ferry you can still commute to Vancouver.
for rent in vancouver for 2,3 or 4 beds you pay close to or over 4 k per month, that is almost 50K per annum on rent + utilities
People having wishful thinking that market will crash and they will do better; perhaps somewhat they will, but look at greater picture
even if 800k house comes to 600K or lower (why would government allow it to fall lower when their tax koffers depend entirely on taxing real estate??) , wait for this for 2 years will cost you 100K in rental cost, for 3 years 150K on rent.
The bottomline is, this system is ripping off everyone, renter or investor, for people to understand.
First Central bunks pump the money supply by 40% in 1 year and then jack the interest rotes, ??
Who wins, renter or buyer? - do the math for yourself; I think many people are struggling if to sell or rent out. If you sell your only option is going rural, if you do not want to pay sky high rent...
if prices in 2 or 3 years correct back up again, who will be able to buy then??
So again, inflation 10% per annum -> in 3 years this will in theory eat 30% of real price of your property.
So in other words, if prices will decrease only 10% in real money, and inflation will be 10% for 3 years, after 3 years , the value will decrease by 40%. Do you get it volks? Yet taxes do not change. in order to afford the same you will 2x more taxes, and living standard will go down.... even without prices plunging too much!!!
in canada, I see people are pulling houses from the market, in BC in particular.
Then there is a difference in selling high home in exposed markets such as Vancouver or submarkets where prices are much lower on avarage and where once sellers complete have to flock (those markets are generally much smaller and have not high saturation. Then there is 1.5 mil. immigrants over next 3 years. creating the demand. The prices are declining, but only future will tell how much. It is possible most of the buyers will end up be forever renters!!
Just a yearly rent. I haven’t check lately because I have a professional team that operates my farm and the result is higher but more volatile too. But just a rent should yield 4% aprox. That is cash that you can spent, is a real rate. You don’t need to adjust for inflation, because the land appreciates with inflation. Not in a straight line but on average. You can buy a small piece of land and you will rent it to the farm next to you.
Instead of selling a home to a buyer, how about the seller loads up on loans and mortgages, dumps the key at the bank, takes the money and leaves the state?
That seems to be the only option in many cases, especially in dumpster fires like Portland and San Francisco.
A year from now - do you think rents will be higher or lower? Inflation is starting to eat into my RE cash flow margin - and although I have a fixed rate mortgage, I’m concerned I won’t be able to pass increasing costs onto my tenants if rents start coming down in the short term.
Do you think investors will be able to keep raising rents, or forced to take a haircut?
Contrary to what most would expect, rents and home prices tend to rise and fall together. I can't say for sure, but my guess would be that rents will drop for as long as home prices do. They're already down in Philly, though not by much. Tons of renters became buyers in the last two years, and now those same people are the first to drop out of the market (poor credit, no reserves, lower income). I think rentals will be in high demand, which should help keep prices more stable. My personal philosophy is that vacancies aren't usually worth marginal rent hikes, so if you've got a good tenant, think hard before raising their rent, especially if you have competitors who charge less.
Thank you for this insight. I am curious about one thing. One of the tenants of fair housing is safe communities, and one of the mentions you made as to what your buyers are seeking is ““ nice neighborhoods, which most people will quantify as a low crime area. I am in Charlotte, North Carolina, and we are facing crime spikes just as many urban areas are. I am curious as to how the current high levels of crime and murder are impacting real estate in Philadelphia. In this climate, it certainly seems like there is an inflection point on many levels and crime is seldom considered in real estate analysis.
Because the Philly crime spike coincided with the housing boom, I can't say I noticed its impact. There are those who would never move to a city like Philadelphia, but I still helped more out of state buyers in 2022 than in any other year (mostly 30-something New Yorkers starting families and unable to buy their first homes in NYC). The crime in Philadelphia is primarily concentrated in certain neighborhoods, and anyone who can afford not to live in them stays away. As a 33 y/o woman, I feel comfortable walking around many parts of Philly alone at night.
Kira - would be nice to see an article or possibly a Q&A with QTR about things to look for (or avoid) in a real estate agent. Have figured out a few based on trial and error over my time on this rock but any boost for an agent that seems to have their head screwed on straight would be appreciated.
I love this idea- thank you. Someday I hope to set up a national referral network for like-minded realtors, but in the meantime...
It already exists. 🤗
Say more!
Before the GFC meltdown 2% of loans were subprime. 350 billion out of a 17 trillion dollar total. It wasn’t really the subprime loans that cause the meltdown, it was the derivatives tied to those loans, and the re-hypothecation of those derivatives.
Today, NQM loans represent 4% of the total. Double what it was in GFC. And the bulk of those have been written in the past 2 years. What we don’t know is the extent of the derivatives and credit swaps behind those NQM loans.
In my view, the answer to that question is going to determine whether real estate prices drift slowly downward as layoffs begin and the economy worsens. Or crashes hard as those things happen and the derivative market turns out to be a repeat of the GFC.
Lastly, in the GFC prices peaked (national average) in September 2005, the FED did not began to lower rates until late 2007, the stock market crashed in September 2008, and again in March 2009, and again in May 2010. Housing prices started to recover in late 2010 to mid 2011, 4-5 years after peaking (depending on geography).
Based on the last crash, and a lot of historical data going back at least 130 years, my opinion is we have a long way to go before the bottom is in sight. (I know there are counter arguments that have many valid points. I just think they are wrong. Time will tell).
And you are talking about urban/suburban areas. Small towns and exurbs took a full decade to recover. I know, we bought in late 2006…yikes! Thankfully we weren’t planning to sell during that decade.
Not discussing any particular area. Just about national averages. I assume you were underwater if you bought in late 2006. If so, we were in the same situation. We said screw it in late 2010, arranged a short sale, and moved onto our 35ft sailboat with a 5 year plan. 2023 will be our 13th year on the boat. Now we figure we may never get off, and just jump overboard when we get to old. Since we are 67 and 66 that time could come sooner than we would like. LOL.
Awesome contribution, thanks. A lot of great info for me to look into here.
You are most welcome. I may have posted the link below already. But since I am not sure I’ll post it again. It provides a history of the up and downs going back 230 years.
https://propertysharemarketeconomics.com/18-point-6-property-share-market-economics/
"What can we expect to see once today’s record number of homes under construction hit the market?" - like watching a train wreck in slow motion....this is what I think I'm seeing on the Carolina coast; people and builders are still getting on the back of the train while the engine is going off the rails. Looking locally in my 'hot neighborhood', I've seen one of the limited supply of existing homes has slipped it's price and missed one contract closing over the past 4 months. This was a house previously purchased in summer '21 and renovated. I've got 2 neighbors who have sold recently with success (exact terms unknown), but they are long term owners (recent widows) who are (probably but unverified) deep in the black and moving into less home closer to family.
Just found out - one widow's sale fell through due to issues with inspection. This is a premium property with prime vista of the intracoastal across the first fairway / green on our golf course. A year ago, any buyer would have eaten a cat turd to close a sale on this property at her price. Fortunately, I think she can afford the cost of repairs, and has room to move in price and remain well in profit if she wants to 'allow for home inspection discrepancies' in price and save the headache.
I have a buddy here in Nashville that just closed a deal to buy 300 homes (Mid 300’s) in the Carolina’s from a National builder….. the builder was willing to take a 75K markdown per home…. The buyer is going to turn them into rentals - 5br homes in the $2K + range….. his plan is to rent them for a couple of years and then turn the around when the market starts to recover
If you don't mind me asking, approximately where in the Carolina's is he buying? I'm wondering about some of our local construction.
thankyou for this article which i found very interesting indeed.......i sold a house in Dec 15/2021......it was on the market only 3 days and sold for a 100K over the asking price.....it was an older home with lots of fixing up to do......the big thing that sold the house was it had a big back yard which we kept well mowed and tidy otherwise the house...like i say...was an older home...needing upgrade.......forward now a yr later i believe if we were still trying to sell it ...it would have been a headache........we might have waited a very long time before it sold......
Great timing, congrats!
I think You are not idiot.very thoughtful.My guess going forward is that it will be fixed.I don't think the deflationary spiral will improve.Japan expects Santa Claus not to come.Stay healthy all my friend
"I think you are not an idiot" is the nicest thing anyone has said to me all week! In all seriousness, thanks for the comment. I'm glad you enjoyed.
What bothers me about this article is real estate has always been one of the ways to diversify away from the dollar (i.e. gold, etc.) and what I am reading is real estate is going to get completely buried under. With inflation and the upcoming depression...there are not very many alternative investment options and real estate is probably off the table for now....
There is manny real estate categories and manny different locations. Not everything is the same. Real Estate is still the best asset class to weather extreme economic turmoils, as long as you don’t have leverage. This is a lesson learned studying history of countries that suffer extreme crisis, however, nothing is 100% sure, for example real estate investors in Russia 1918 and Cuba 1959 had a total loss. Residential apartment buildings can be subject to rent control (and have been) in any city of the world. Some industrial properties con be idle for decades or forever.
The best category in real estate is without a doubt, good quality farm land. Farmland survived all crisis (except Communism) and even when can go down in value during a deflationary crisis, it will recover and will nearly always produce a cash dividend in the form of a rent, because people cannot stop eating. Among Farmland, there is a lot of sub categories, not all are the same. To make it simple, the safest is a farm in the midwest, with plenty of water, where you can do Corn, Soybeans and Wheat. You will weather any crisis, and if things go too bad, you can go there and farm it yourself. With the new technology is very easy today. I do not have life insurance or retirement accounts, I have farmland.
Have a family member that has done VERY well with farmland and would not hesitate to recommend it to others. The interesting part for me that I rarely hear people talk about when discussing real estate investing is that farmland usually has low tenant requirements if you want to manage the property yourself.
Quick question...what is rent when it comes to farmland? Is it sharecropping that you are referring to?
In the case of my family member it is just land rental, they do not provide any other materials. It is rented by local farms that farm thousands of acres of land and just need more acreage for soy and/or corn (depending on the year).
@Gonzalo - Thank you very much for your response. I honestly never thought of farmland as a real estate investment but it does make a lot of sense from what you have said. I have land in Tennessee but it is not agreeable to farming as it is on top of a ridge. It's more of a bug-out place. Iowa is too far for me but I can certainly look for land nearby in Tennessee. Best wishes!
There is very fine land in Tennessee or if you are close to Memphis, just cross the River and Arkansas has very good quality farms in the Mississippi Delta. I know the area well.
e.g. north vancouver rent hits $2400 for 1 bed unfurnished.
so, do the math - if you go to smaller markets next vancouver you can get a decent house north of Victoria, van island for 800k.
via ferry you can still commute to Vancouver.
for rent in vancouver for 2,3 or 4 beds you pay close to or over 4 k per month, that is almost 50K per annum on rent + utilities
People having wishful thinking that market will crash and they will do better; perhaps somewhat they will, but look at greater picture
even if 800k house comes to 600K or lower (why would government allow it to fall lower when their tax koffers depend entirely on taxing real estate??) , wait for this for 2 years will cost you 100K in rental cost, for 3 years 150K on rent.
The bottomline is, this system is ripping off everyone, renter or investor, for people to understand.
First Central bunks pump the money supply by 40% in 1 year and then jack the interest rotes, ??
Who wins, renter or buyer? - do the math for yourself; I think many people are struggling if to sell or rent out. If you sell your only option is going rural, if you do not want to pay sky high rent...
if prices in 2 or 3 years correct back up again, who will be able to buy then??
So again, inflation 10% per annum -> in 3 years this will in theory eat 30% of real price of your property.
So in other words, if prices will decrease only 10% in real money, and inflation will be 10% for 3 years, after 3 years , the value will decrease by 40%. Do you get it volks? Yet taxes do not change. in order to afford the same you will 2x more taxes, and living standard will go down.... even without prices plunging too much!!!
in canada, I see people are pulling houses from the market, in BC in particular.
Then there is a difference in selling high home in exposed markets such as Vancouver or submarkets where prices are much lower on avarage and where once sellers complete have to flock (those markets are generally much smaller and have not high saturation. Then there is 1.5 mil. immigrants over next 3 years. creating the demand. The prices are declining, but only future will tell how much. It is possible most of the buyers will end up be forever renters!!
Here is my analysis.
Conclusion: Buying a home right now is a rip-off.
Comments: The monetary scam is distorting the real world in all kinds of ways.
Fun Reference: "Sometimes, I can't help the feeling that I'm living a life of illusion." - Joe Walsh
Bad news, good song.
Just a yearly rent. I haven’t check lately because I have a professional team that operates my farm and the result is higher but more volatile too. But just a rent should yield 4% aprox. That is cash that you can spent, is a real rate. You don’t need to adjust for inflation, because the land appreciates with inflation. Not in a straight line but on average. You can buy a small piece of land and you will rent it to the farm next to you.
New construction will be the real barometer here. We are seeing 25% decreases in Southern AZ since June.
Instead of selling a home to a buyer, how about the seller loads up on loans and mortgages, dumps the key at the bank, takes the money and leaves the state?
That seems to be the only option in many cases, especially in dumpster fires like Portland and San Francisco.
We downsized 2018 missing the run up. Renting and comfortable wanting to buy but hoping for an EPIC crash sorry sellers.
A year from now - do you think rents will be higher or lower? Inflation is starting to eat into my RE cash flow margin - and although I have a fixed rate mortgage, I’m concerned I won’t be able to pass increasing costs onto my tenants if rents start coming down in the short term.
Do you think investors will be able to keep raising rents, or forced to take a haircut?
Contrary to what most would expect, rents and home prices tend to rise and fall together. I can't say for sure, but my guess would be that rents will drop for as long as home prices do. They're already down in Philly, though not by much. Tons of renters became buyers in the last two years, and now those same people are the first to drop out of the market (poor credit, no reserves, lower income). I think rentals will be in high demand, which should help keep prices more stable. My personal philosophy is that vacancies aren't usually worth marginal rent hikes, so if you've got a good tenant, think hard before raising their rent, especially if you have competitors who charge less.
Thank you for this insight. I am curious about one thing. One of the tenants of fair housing is safe communities, and one of the mentions you made as to what your buyers are seeking is ““ nice neighborhoods, which most people will quantify as a low crime area. I am in Charlotte, North Carolina, and we are facing crime spikes just as many urban areas are. I am curious as to how the current high levels of crime and murder are impacting real estate in Philadelphia. In this climate, it certainly seems like there is an inflection point on many levels and crime is seldom considered in real estate analysis.
Because the Philly crime spike coincided with the housing boom, I can't say I noticed its impact. There are those who would never move to a city like Philadelphia, but I still helped more out of state buyers in 2022 than in any other year (mostly 30-something New Yorkers starting families and unable to buy their first homes in NYC). The crime in Philadelphia is primarily concentrated in certain neighborhoods, and anyone who can afford not to live in them stays away. As a 33 y/o woman, I feel comfortable walking around many parts of Philly alone at night.
This is why local perspective is always more
Valuable than national. Thanks!
*tenets*