OT: Finance / real estate guys

[thatsbaseball]

Just heard a guy on the radio pull a figure out of his *** that for every 1% increase in mortgage rates home values would decrease 10% . I know his numbers are probably ******** but I'm also sure there will be a correlation between rising interest rates lowering home values to some degree. Are there any reliable "rule of thumb" numbers that can be applied using interest rates to predict residential real estate values ?

 

[Cooterpoot]

Right now, it's changing nothing really. Supply is short and demand high. There's been about a 20% increase in values the last year or so (most areas), more in resort or high-end areas. But if you're thinking of selling, do it.

 

[msugrad2003]

Selling is appealing. But “where do you go” is the concern with my simple minded friends. You will make money selling but then dump it into something new. I guess you could downsize for a couple years assuming things change. Please tell me if I’m wrong in this. I would love to hear of options if one did sell

 

[dorndawg]

Just heard a guy on the radio pull a figure out of his *** that for every 1% increase in mortgage rates home values would decrease 10% . I know his numbers are probably ******** but I'm also sure there will be a correlation between rising interest rates lowering home values to some degree. Are there any reliable "rule of thumb" numbers that can be applied using interest rates to predict residential real estate values ?

He's chock full of ****. Interest rates have gone up over 1% in the last year as house prices have gone up drastically. Anyhow, here's the facts:

View attachment 24230
View attachment 24231

 

[MSUGUY]

OT: Housing prices

I’m considering buying a second house for kids to use for schooling in Jackson area, they could easily stay at home too, My question is how long will this real estate pricing boom continue with the coming headwinds of rates, possible recession, etc? Is the Pack’s opinion buy now or wait for a pullback in house prices?

 

[PooPopsBaldHead]

This^^^. Interest rates doubled from 1972 until 1982 and home values tripled. When rates rise in the US and 95% of homes have fixed rate mortgages, there is no incentive to sell other than paying the homeowner more than it's worth to offset the cost of their replacement.

I made a gif the other day that explains this.

View attachment 24232

 

[dorndawg]

I’m considering buying a second house for kids to use for schooling in Jackson area, they could easily stay at home too, My question is how long will this real estate pricing boom continue with the coming headwinds of rates, possible recession, etc? Is the Pack’s opinion buy now or wait for a pullback in house prices?

JoeLee and others can give you way more info & data, but there isn't going to be a pullback anytime soon (absent obv some MAJOR world event). The upward trajectory will certainly start to bend. The short answer is, buy now before houses go up more.

 

[Smoked Toag]

Selling is appealing. But “where do you go” is the concern with my simple minded friends. You will make money selling but then dump it into something new. I guess you could downsize for a couple years assuming things change. Please tell me if I’m wrong in this. I would love to hear of options if one did sell

Well, if you have cash, you are essentially creating equity for yourself to sell high and buy high (obviously assuming you bought low(er), in this case say 20% or whatever). Where you mess up is doing the 30-year mortgage, as you end up paying a bunch in interest (you'd have to do the math to get exact numbers). And of course if you're going from a high state like California to Mississippi, you come out ahead, that is, if you plan to stay in Mississippi. If you plan to go back to California better not blow all your profits on remodeling or something.

 

[Cousin Jeffrey]

What he's probably talking about is home affordability.

Example:
A $200,000 loan at 4% yields a 30-year payment of $955. At 5%, to get the same payment you could only borrow about $178,000.

So, the amount you could borrow went down by about 11% when the interest rate only went up by 1%.

 

[dorndawg]

What he's probably talking about is home affordability.

Example:
A $200,000 loan at 4% yields a 30-year payment of $955. At 5%, to get the same payment you could only borrow about $178,000.

So, the amount you could borrow went down by about 11% when the interest rate only went up by 1%.

This makes more sense

 

[Smoked Toag]

You'd have to play with the numbers to really see what's going on there. Values skyrocketed, so a 10% decrease could still be a very big increase over the time that the 1% IR increase was happening.

Supply and demand trumps all. That said, it's probably reasonable to believe that harder access to money (i.e. rates going up) will take away some demand. Who knows how much.

 

[aTotal360]

Too general of a statement to make, but it could be accurate in some markets.

I exclusively sell investment (STR) properties in North GA and I can tell you that the increased rates have indeed slowed down a lot of buyers, but sales prices aren't going down at all. Instead of getting 20-40 offers on a property, I'm getting 5-15. But the winning offers are still astonishing. $100-150K over asking, waiving inspection (or due diligence), waiving the appraisal, waiving financing contingency, and 10-20% of purchase price as earnest money, is just about standard on turnkey properties less than 10 years old.

I'm hearing rates could climb back down starting in late October. Again that is total speculation. If they do, there might be opportunities to refi early 2023.

I think in poorer, more rural areas, what the radio guy is saying could happen. A increase of 1% in interest to someone needing a FHA loan on a 110k house in Drew, MS could mean the seller loses 11k because the buyer's buyer power will be lower. And the amount of people shopping for that house will small. So the impact of the rate hike may be realized by the seller.

 

[Smoked Toag]

Too general of a statement to make, but it could be accurate in some markets.

I exclusively sell investment (STR) properties in North GA and I can tell you that the increased rates have indeed slowed down a lot of buyers, but sales prices aren't going down at all. Instead of getting 20-40 offers on a property, I'm getting 5-15. But the winning offers are still astonishing. $100-150K over asking, waiving inspection (or due diligence), waiving the appraisal, waiving financing contingency, and 10-20% of purchase price as earnest money, is just about standard on turnkey properties less than 10 years old.

I'm hearing rates could climb back down starting in late October. Again that is total speculation. If they do, there might be opportunities to refi early 2023.

I think in poorer, more rural areas, what the radio guy is saying could happen. A increase of 1% in interest to someone needing a FHA loan on a 110k house in Drew, MS could mean the seller loses 11k because the buyer's buyer power will be lower. And the amount of people shopping for that house will small. So the impact of the rate hike may be realized by the seller.

Since you're in the business, who are these people who are throwing this (paper) money around? Are they just normal everyday people? Do they truly have the money, or are they just desperate with some combination of YOLO and FOMO?

My motto has always been to lay low when **** gets crazy, and make big moves when it's quiet, unless life actually dictates otherwise (job move or something). So I'm just curious what is really going on out there in your world, on the front lines.

 

[aTotal360]

It's a mixed crowd. Some are first time investors doing HELOCs and saving as much money as they can. Some of people converting their LTR to STR with 1031 exchanges. Some of seasoned STR investors that simply making bank and increasing their portfolio. I work with people buying their first investment and some of my clients have 50+ doors.

I'd say right now is a good time to buy in my market. You won't save any money, but you might be able to get something under contract without ridiculous terms since the # of offers is significantly less than it was pre March 15th (when the rates hike hit).

The 10% down, second home loan is the big game changer. If your DTI is decent, its pretty easy to get into a $850k rental property that will cash flow fairly well.

 

[PooPopsBaldHead]

You are not wrong. There is no incentive to sell, yet everyday more and more people need to buy as millennials start to form families and need housing vs living in the bro pad or mom's basement. But those of us that own homes with lots equity, low APR's, and really low payments compared to what a new house would cost, really do not want to sell. The solution is we need to build more homes. Inventory is absolutely too low. We underbuilt for a decade. See below:

View attachment 24233

25% of all new homes being built today are infill. Meaning we tear down an existing home to build a new one. That's not good either.

We always think of the 2005 as of having built the most houses in the US. That's wrong. We built way more in the 1972 (300k more in fact), even though we had 80 million fewer people to house. As of today, our housing stock as a percentage of the population is lower than its been since the 1970's even though families are smaller.

Hold on to your home if at all possible. If you need to move, rent the sucker out if at all possible. Everyone has this wild notion housing is going to crash... 2008 was completely different. Terrible loans, too much inventory, and a massive recession. With all of that said and as bad as it was, median home values nationally dropped a grand total of 12% peak to trough from 2007-2009. During that same time, the S&P dropped 53%.

Housing isn't going to crash unless a whole lot of jobs are lost and people cant afford to pay mortgages that are locked in at much lower rates and payments. We are absolutely hamstrung on building our way out of it as well. Builders are nervous of rising rates, so they will stop building until they sell everything. Under construction.

Look at the charts below. Interest rates. Housing starts (Build a bunch, sell them, build a bunch more.) And home prices in our last rising interest rate environment from 72-82. This is not. I repeat, nothing like 2008. Housing is expensive yes. But its undersupplied and its going to get more expensive in most markets.

30 year mortgage rate Q1 1972 = 7.35%
30 year mortgage rate Q2 1982 = 17.41%

View attachment 24236

Median home prices 1972 = $26.2K
Median home prices 1982 = $70k

View attachment 24235

US New Home Starts (Build a bunch, sell them, build more, etc.)

View attachment 24234

 

[dorndawg]

View attachment 24232

View attachment 24237

 

[PooPopsBaldHead]

What he's probably talking about is home affordability.

Example:
A $200,000 loan at 4% yields a 30-year payment of $955. At 5%, to get the same payment you could only borrow about $178,000.

So, the amount you could borrow went down by about 11% when the interest rate only went up by 1%.

You are dead on. The radio guy was obviously confused.

But a lot of people are acting like the is the most unaffordable market in history for new buyers. Not even close. In 1982, homes were $70k, interest rates were 17.5%, and median national household income was $21K. If you scratched up a 20% down payment ($14K or a little more than paying cash for 2 brand new median vehicles) monthly payments worked out to be $820 a month before taxes and insurance. That was 46% of gross median monthly household income. Speaking of taxes, go look at those federal tax brackets back in 1982... Woof.

Todays version. $410K house, 5% interest rate, and $71k median gross household income.

$82K down (A lot of money, but you aren't getting 2 brand new median cars since they average $46K apiece now)
Payment is $1760 per month before taxes and insurance
30% of median household monthly income

I am not going to take the time to even look at the after tax breakdown, but I would imagine it skews the affordability even more towards current new buyers.


For current housing to get as unaffordable as it was in 1982, the median national home price would have to climb another 30% and mortgage rates would have to get up to 8% without anybody getting a raise. But if those things climb, we end up getting bigger raises.

Inflation is a viscous mother.

 

[johnson86-1]

You are dead on. The radio guy was obviously confused.

But a lot of people are acting like the is the most unaffordable market in history for new buyers. Not even close. In 1982, homes were $70k, interest rates were 17.5%, and median national household income was $21K. If you scratched up a 20% down payment ($14K or a little more than paying cash for 2 brand new median vehicles) monthly payments worked out to be $820 a month before taxes and insurance. That was 46% of gross median monthly household income. Speaking of taxes, go look at those federal tax brackets back in 1982... Woof.

Todays version. $410K house, 5% interest rate, and $71k median gross household income.

$82K down (A lot of money, but you aren't getting 2 brand new median cars since they average $46K apiece now)
Payment is $1760 per month before taxes and insurance
30% of median household monthly income

I am not going to take the time to even look at the after tax breakdown, but I would imagine it skews the affordability even more towards current new buyers.


For current housing to get as unaffordable as it was in 1982, the median national home price would have to climb another 30% and mortgage rates would have to get up to 8% without anybody getting a raise. But if those things climb, we end up getting bigger raises.

Inflation is a viscous mother.

You have to remember that payroll taxes were about 1 percentage point less then, and that's basically a flat tax on all income at at the median wage. Plus things like consumer interest was deductible in 1982. I think the tax impacts are less for households making the median income or less today (because so few people play income taxes at all and the difference in payroll tax probably doesn't offset that), but in general it's hard to look at just tax brackets and figure out when tax burdens were higher for particular income groups.

The other thing that is key to affordability is how much income is required for non-housing goods nad services. Breakdown of spending is very different across time. Clothing went from being a pretty decent expense to being minor. On the flipside, healthcare went from being a relatively minor expense to being major. But in general, if you believe CPI numbers, we should have more disposable income to devote to housing now, so 30% of income on housing today is in theory not as painful as 30% of income on housing 40 years ago.

 

[johnson86-1]

It's a mixed crowd. Some are first time investors doing HELOCs and saving as much money as they can. Some of people converting their LTR to STR with 1031 exchanges. Some of seasoned STR investors that simply making bank and increasing their portfolio. I work with people buying their first investment and some of my clients have 50+ doors.

I'd say right now is a good time to buy in my market. You won't save any money, but you might be able to get something under contract without ridiculous terms since the # of offers is significantly less than it was pre March 15th (when the rates hike hit).

The 10% down, second home loan is the big game changer. If your DTI is decent, its pretty easy to get into a $850k rental property that will cash flow fairly well.

I'd like to get a condo somewhere in the panhandle, but when I look at getting things to cashflow, if you aren't self managing (which I don't think we can realistically do remotely), it seems like you need more like 35% down to cashflow. I don't know if I'm being too pessimistic in my income and expense projections, but 10% down would seem to leave me coming out of pocket a lot each month.

 

[aTotal360]

Self managing is key. Management companies eat 25-35% of your profits. Lastly, you can't do a 10% down, 2nd home loan if you plan on enrolling it with a mgmt co.

My "mega" clients would rather own 3 properties at 10-15% down than put all that liquidity into a single property.

Ultimately, you have to know what to look for in every single area. I have teammates all along 30A. From Gulf Shores to St. George's Island. Every little beach has a different vibe and set of regulations. You have to know each one like the back of you hand to do well.

 

[Shmuley]

On a recent Marketplace episode there was an interview of a housing market wall-streeter type (I think the guy was affiliated with Citibank) who stated, "... if there were another 5 million new houses suddenly placed on the market for sale overnight, there would be no effect on market values given the current demand."

 

[aTotal360]

I believe that. The amount of good, livable properties BlackRock owns that are just sitting vacant because of tax purposes is absurd. 10s of 1000s in every major city and suburbs.

In my area, builders are only able to produce about 25% of the homes they normally could since covid. Windows, granite, appliances and doors take 3x longer to get and finding framers is difficult. Supply chain issues and workforce shortages are hammering the housing market.

 

[dorndawg]

I believe that. The amount of good, livable properties BlackRock owns that are just sitting vacant because of tax purposes is absurd. 10s of 1000s in every major city and suburbs.

In my area, builders are only able to produce about 25% of the homes they normally could since covid. Windows, granite, appliances and doors take 3x longer to get and finding framers is difficult. Supply chain issues and workforce shortages are hammering the housing market.

Not saying you're wrong at all but do you have more info on this? I knew BlackRock was/is buying lots of houses, my understanding is they plan to rent them.

 

[johnson86-1]

You are not wrong. There is no incentive to sell, yet everyday more and more people need to buy as millennials start to form families and need housing vs living in the bro pad or mom's basement. But those of us that own homes with lots equity, low APR's, and really low payments compared to what a new house would cost, really do not want to sell. The solution is we need to build more homes. Inventory is absolutely too low. We underbuilt for a decade. See below:

With all of that said and as bad as it was, median home values nationally dropped a grand total of 12% peak to trough from 2007-2009. During that same time, the S&P dropped 53%.

It's already been mentioned, but people can't buy the median house. Even if you somehow were able to buy the median house at a particular time, that house wouldn't be the median in a year or ten. Unless you bought in a particularly good location, it would be selling below the median as wear and tear and the addition of new housing made it relatively less desirable.

We bought a house that had already dropped about 25% and we thought we were buying at the bottom. We did some superficial remodeling to get rid of the worst of the dated features and held on to it for about seven years, and were able to sell it for another 8.5% (measured from the high point of the market, not our purchase price; about 11.5% down from our purchase price, and if you include the money we put into remodeling, our total loss was around 17.5%. That house at this point would I guess sell for about the amount we had into it, so if we had held onto it for a full 14 years, we would have sold it for what we had in it. Of course, over those 14 years, we would have either been receiving rent (or getting the value of imputed rent) and paying for repairs (we did pay for a pretty price HVAC replacement that is not included in my numbers), so who knows how the investment ultimately turns out, but if you just look at how it held it's value, it depreciated until having a pretty incredible bull market to get it back to even.

We bought a few rental properties out of foreclosure that we still have and they have more than doubled in value from what we paid but they're still probably 15% down from the amount paid by people who lost it in foreclosure.

Just thinking about local areas, I think the best school districts and most desirable other areas have more than recovered from the crash, but of course a lot of those would have been the worst cash flowing options for a good chunk of the recovery.

All that to say, I would not go out and buy thinking it's can't lose. If you can afford a house that you are going to live in in a desirable area, that's probably a pretty ironclad bet. I wouldn't bet the farm on investment property because you think you're going to get left behind.

 

[aTotal360]

I don't have a spreadsheet, but I use to work for the largest REO brokerage in the world post 2007 real estate crash. From 2007-2011, they did more sides than any single brokerage on the planet. My broker would tell stories of closing 100-200 properties every single Friday for years until the market settled. Vast majority of them were going to BlackRock and Vanguard hedge funds. 3rd on the list were foreign investors, Hong Kong having the biggest representation. Keep in mind this is just in Georgia and Florida.

My understanding is they buy the properties, don't rent them, and it show as a loss on the P&L. Because of this they mitigate millions, maybe even billions in taxes. Renting them would kill the business model in some instances. The kicker is most of the properties they bought for pennies on the dollar and are likely worth 5-10x what they paid for them in 2008-2010. They basically own a fist full of "get out tax jail for free" cards that make them 1000s by not playing them.

I'll openly admit that I'm not a tax biologist, but that's my understanding of the situation. I'm sure Engie Buffet or Donald Goat know more about it than I.

 

[stateu1]

I'd like to get a condo somewhere in the panhandle, but when I look at getting things to cashflow, if you aren't self managing (which I don't think we can realistically do remotely), it seems like you need more like 35% down to cashflow. I don't know if I'm being too pessimistic in my income and expense projections, but 10% down would seem to leave me coming out of pocket a lot each month.

We have one on Scenic 98 in Destin and use VRBO. It's easy but they are not as consumer friendly as they once were. We upgraded to a new unit last February and one exactly like ours just sold at 50% above what we paid.

 

[johnson86-1]

I don't have a spreadsheet, but I use to work for the largest REO brokerage in the world post 2007 real estate crash. From 2007-2011, they did more sides than any single brokerage on the planet. My broker would tell stories of closing 100-200 properties every single Friday for years until the market settled. Vast majority of them were going to BlackRock and Vanguard hedge funds. 3rd on the list were foreign investors, Hong Kong having the biggest representation. Keep in mind this is just in Georgia and Florida.

My understanding is they buy the properties, don't rent them, and it show as a loss on the P&L. Because of this they mitigate millions, maybe even billions in taxes. Renting them would kill the business model in some instances. The kicker is most of the properties they bought for pennies on the dollar and are likely worth 5-10x what they paid for them in 2008-2010. They basically own a fist full of "get out tax jail for free" cards that make them 1000s by not playing them.

I'll openly admit that I'm not a tax biologist, but that's my understanding of the situation. I'm sure Engie Buffet or Donald Goat know more about it than I.

I'm not in real estate, but my understanding is that they hand those off to management companies to rent or to rehab companies to fix up and flip when the market firmed up. To keep them and not rent them, they'd still have to pay somebody to check and maintain them regularly or else take a hit from them depreciating (as in actual value , not tax or book depreciation) because properties without anybody in them tend to deteriorate pretty, are at greater risk of vandalism or squatting, and are at greater risk of catastrophic losses from mold, water, or fire damage (which is why it costs more to insure unoccupied properties). As far as tax consequences, they get depreciation regardless, and the only additional losses are going to be actual expenses. Foregoing rental income because you don't want to pay taxes on it is not going to make sense in any situation I'm aware of.

What's different now is that companies like Black Rock are actually buying whole neighborhoods from tract home developers in some circumstances just to rent them out. Their public explanation is that they view that as a better appreciation play than apartments because you have more land and they believe single family homes will appreciate more quickly than apartments (which historically has been true). Going to be interesting to see if those single family houses don't look more like apartments when they are 100% rentals like apartments.

 

[dorndawg]

I'm not in real estate, but my understanding is that they hand those off to management companies to rent or to rehab companies to fix up and flip when the market firmed up. To keep them and not rent them, they'd still have to pay somebody to check and maintain them regularly or else take a hit from them depreciating (as in actual value , not tax or book depreciation) because properties without anybody in them tend to deteriorate pretty, are at greater risk of vandalism or squatting, and are at greater risk of catastrophic losses from mold, water, or fire damage (which is why it costs more to insure unoccupied properties). As far as tax consequences, they get depreciation regardless, and the only additional losses are going to be actual expenses. Foregoing rental income because you don't want to pay taxes on it is not going to make sense in any situation I'm aware of.

What's different now is that companies like Black Rock are actually buying whole neighborhoods from tract home developers in some circumstances just to rent them out. Their public explanation is that they view that as a better appreciation play than apartments because you have more land and they believe single family homes will appreciate more quickly than apartments (which historically has been true). Going to be interesting to see if those single family houses don't look more like apartments when they are 100% rentals like apartments.

This all makes sense. I was having trouble wrapping my head around institutional investors holding vast quantities of straight up vacant houses.

 

[johnson86-1]

We have one on Scenic 98 in Destin and use VRBO. It's easy but they are not as consumer friendly as they once were. We upgraded to a new unit last February and one exactly like ours just sold at 50% above what we paid.

What do you do as far as turnover? I can put my mind around having somebody local to handle lockouts and minor repairs and cleaning, but what, for example, do you do if a renter shows up and claims the unit is not clean? Or is damaged? Get in the car and go? Or do you have somebody local for that also? It seems like at that point you'd be paying almost a full management freight by the time you add VRBO fees to the local costs.

 

[aTotal360]

Finding a reliable cleaner is the hard part. Everything else is automated. Schlage Encode door locks are your best friend. You can set up time specific door codes for individual rental groups. Thermostats and Ring cameras are all remotely handled.

If a renter shows up and the place is not cleaned, you apologize, scramble to find a cleaner, and give your renters a free nights stay.

 

[stateu1]

What do you do as far as turnover? I can put my mind around having somebody local to handle lockouts and minor repairs and cleaning, but what, for example, do you do if a renter shows up and claims the unit is not clean? Or is damaged? Get in the car and go? Or do you have somebody local for that also? It seems like at that point you'd be paying almost a full management freight by the time you add VRBO fees to the local costs.

We have reliable local people. In about 10 year, we have not had many complaints. Once, someone called because a light bulb was out though...... The cleaning fees are passed on to the renter under either management deal.

 

[PooPopsBaldHead]

All we can really discuss is the median home when we are talking about "real estate." The overall US market conditions are what median prices represent. I understand what you are saying, but all we can discuss is the overall environment unless we start a thread for every single address.

Now if you do want to hyperlocalize, it gets a whole lot granular. That 12% drop was across the country. Real estate is always local. I lived in Austin at the time and we barely felt anything... maybe 5% decline, but you get more than that with seasonal pricing. Now Las Vegas on the other hand, they dropped like 60%.

So I am of the belief that you invest in growing markets. Place that have jobs and a quality of life people want. Everything I have ever owned is in or near a market that shows up somewhere on a fastest growing list of some sort and that has proven to be a very lucrative strategy. Much like a stock, buy and sell on strength, because its hard to pick a bottom or a top.

 

[garddog]

I wouldn't build anything right now. Cost to build is way up and you will be in the red when everything finally normalizes.

 

[Smoked Toag]

I wouldn't build anything right now. Cost to build is way up and you will be in the red when everything finally normalizes.

Smart man.

 

[johnson86-1]

All we can really discuss is the median home when we are talking about "real estate." The overall US market conditions are what median prices represent. I understand what you are saying, but all we can discuss is the overall environment unless we start a thread for every single address.

Now if you do want to hyperlocalize, it gets a whole lot granular. That 12% drop was across the country. Real estate is always local. I lived in Austin at the time and we barely felt anything... maybe 5% decline, but you get more than that with seasonal pricing. Now Las Vegas on the other hand, they dropped like 60%.

So I am of the belief that you invest in growing markets. Place that have jobs and a quality of life people want. Everything I have ever owned is in or near a market that shows up somewhere on a fastest growing list of some sort and that has proven to be a very lucrative strategy. Much like a stock, buy and sell on strength, because its hard to pick a bottom or a top.

I understand why you talk about median, but the more I think about it, the less useful I think the discussion about the median is. Even if you get local, if you look at one of the many stagnant markets in Mississippi, I would suspect that the median price probably keeps up with inflation while individual homes generally do not, as new housing stock slightly exceeds the amount of housing stock that is just let go. Saying the median house dropped 12% across the country will tend to mislead a lot of people into thinking that the median house depreciated 12% top to bottom. In reality, those two median prices are measuring two different houses. And they could be two very different houses. The median home could be a new construction, 1800 sq ft house. If could be a 2800 sq foot house built 20 years ago. Even if you are looking at investing in a REIT, you are getting mainly commercial exposure in urban markets, so probably the SHiller housing index is a better gauge than the median home price.

I'm not really criticizing what you're saying, I just think it's not really relevant to probably a lot of people on this board, who probably disproportionately live in regions that are not booming. A lot of us probably live in areas that are only growing because of population fleeing nearby, more rural and stagnant areas, and who knows what it looks like when that trend plays out b/c there's no one left in those depopulating areas. I have not bought rental property in a while because it was no longer to possible to buy decent cash flowing property near me. In hind sight that's been a mistake because of inflation and we actually have picked up some growth from people fleeing places with punitive covid restrictions (still not sure how much of that is going to be permanent; I think a surprising amount of it is). You're posts were making me think I should start aquiring properties again, but after thinking about it, I still don't know that I feel good about investing in real estate in my area as an appreciation play. We're still not going to be booming population wise that I can tell. Even in the areas that have seen the strongest growth in my area, looking over the past 10 years, there would have been a lot of mediocre appreciation, to go along with negative cash flow before skyrocketing the last few years (and also cash flowing, so maybe my horizon is just too short). Maybe if you had good local data for our area on population and housing starts, that spike could have been forecast, not sure. But it certainly wouldn't have felt like a good investment the first several years.

 

[johnson86-1]

I wouldn't build anything right now. Cost to build is way up and you will be in the red when everything finally normalizes.

I think that entirely depends on where you are. If you are in a growing market, people still tend to prefer new construction, so you may be better off in 10 years after paying a little more now for new construction than you would be saving a little money and buying older housing stock.

 

[PooPopsBaldHead]

All good points. Can't argue. There is not getting around it, location is everything.

As far as investing in RE. It's tough to want to buy in today, but when the time is right (maybe this fall or winter when we get a seasonal pullback), look around the country in different markets that are rocking. I'm eyeballing some projects getting ready to break ground 2000 miles away from me that I may 1031 into next year. Hire a property manager and treat it like an 5-7 year hold on a blue chip stock. Rinse and repeat. No since in limiting your geography.

 

[PooPopsBaldHead]

There's very little chance, the cost to build really ever comes back down. All of the building materials have made a permanent step up in price. They well ebb and flow at much higher levels than ever before. I can't foresee labor getting any cheaper either. Maybe there is some relief down the road with stuff like appliances, but raw commodity stuff like lumber, steel, gypsum, etc... This is the new normal. $2.50 2x4x8 lumber and $12 7/16 OSB has gone the way of the dodo.

I will keep saying this. It's not going to get cheaper. I have a couple of friends who bought into the sell high and buy low BS back in 2020. Guy I know in Dallas area is really taking it on the chin. Sold his house for $350k in the fall of 2020 and has been waiting for a deal ever since. He signed a lease for 6 months hoping to find a deal in the spring of 2021 and got blasted on every offer by folks with more cash and higher bids. Now its even worse. His rent has gone through the roof and the owner is selling the house so he has to find a new place. His old place right now would sell for $550k. So just to get back where he was he loses $170K in equity gets a 5% handle on the interest rate, pays a shitload more in property taxes and homeowners insurance. You get the picture.

For the umpteenth time.

1. It's not going to get cheaper to build. It never really has. You just have to find a way to cut corners or build smaller to lower costs in the future.
2. And for goodness sake, don't get off the carousel if you are already on it. Do not sell your house right now without an ironclad deal on another place to live.

It's going to take one hell of a recession to change these dynamics. With 10,000,000 open jobs and a Fed that will do anything under the sun to prevent high unemployment, major recessions are not on the table anymore. Long, drawn out stagflation is a much higher possibility.

 

[johnson86-1]

There's very little chance, the cost to build really ever comes back down. All of the building materials have made a permanent step up in price. They well ebb and flow at much higher levels than ever before. I can't foresee labor getting any cheaper either. Maybe there is some relief down the road with stuff like appliances, but raw commodity stuff like lumber, steel, gypsum, etc... This is the new normal. $2.50 2x4x8 lumber and $12 7/16 OSB has gone the way of the dodo.

I will keep saying this. It's not going to get cheaper. I have a couple of friends who bought into the sell high and buy low BS back in 2020. Guy I know in Dallas area is really taking it on the chin. Sold his house for $350k in the fall of 2020 and has been waiting for a deal ever since. He signed a lease for 6 months hoping to find a deal in the spring of 2021 and got blasted on every offer by folks with more cash and higher bids. Now its even worse. His rent has gone through the roof and the owner is selling the house so he has to find a new place. His old place right now would sell for $550k. So just to get back where he was he loses $170K in equity gets a 5% handle on the interest rate, pays a shitload more in property taxes and homeowners insurance. You get the picture.

For the umpteenth time.

1. It's not going to get cheaper to build. It never really has. You just have to find a way to cut corners or build smaller to lower costs in the future.
2. And for goodness sake, don't get off the carousel if you are already on it. Do not sell your house right now without an ironclad deal on another place to live.

It's going to take one hell of a recession to change these dynamics. With 10,000,000 open jobs and a Fed that will do anything under the sun to prevent high unemployment, major recessions are not on the table anymore. Long, drawn out stagflation is a much higher possibility.

The only way labor is going to get cheaper is by using less of it. As it is, your most labor intensive stuff (framing, roofing, drywall, paint) is already being done almost exclusively by immigrants, whether legal or legal.

I think you're going to continue to see housing move more and more towards being manufactured and assembled rather than built. Where I live, your sand in place wood floors are pretty much non-existent outside the highest end homes. Even good looking engineered wood is becoming less common in favor of vinyl or laminate plank; not sure if that's just a price issue for the material or if the labor is cheaper to install the vinyl and laminate. Custom cabinets only go in pretty high end homes and they are now manufactured offsite and then hung in the house. Even with the out of the box cabinets, some of the tract home builders seem to be moving towards designs that cut down on corners in kitchen cabinets and countertops, I think because it takes extra labor.

I'm wondering whether the manufactured walls might become cost competitive now. They seemed to be getting popular for a hot minute, but I think it ended up not saving any money and not improving quality. With how tight the labor market is getting, I wonder if that won't take off, especially for tract home builders that are buildng the same five houses over and over again.

 

[Smoked Toag]

I will keep saying this. It's not going to get cheaper. I have a couple of friends who bought into the sell high and buy low BS back in 2020. Guy I know in Dallas area is really taking it on the chin. Sold his house for $350k in the fall of 2020 and has been waiting for a deal ever since. He signed a lease for 6 months hoping to find a deal in the spring of 2021 and got blasted on every offer by folks with more cash and higher bids. Now its even worse. His rent has gone through the roof and the owner is selling the house so he has to find a new place. His old place right now would sell for $550k. So just to get back where he was he loses $170K in equity gets a 5% handle on the interest rate, pays a shitload more in property taxes and homeowners insurance. You get the picture.

How in the blue hell is this an example of "sell high buy low"? Sounds like he did the opposite.

You don't execute true 'buy low sell high' over the course of months. That happens over the course of many years. If you MUST buy right now, fine, do it. But if you don't, it's not a great time to be out there trying to make money (unless you bought many years ago).