For the Real Estate Drop in sales and price Naysayers HOLD ONTO YOUR HATS

[El Rojo]

7 years? I personally have not heard ONE SINGLE person calling for doom and gloom during the Trump Administration, all I heard was success stories, how wealth is being created, economy and job market at its best in 40 years, booming everything including the housing market...then about 17 months ago Dumbldorf came into office and started to destroy it all....I do agree on one thing, we have a few select self proclaimed keyboard know it all experts that post on every topic imaginable throughout this site touting supposed expertise but that is expected, it is a public forum and some people cannot help themselves to always interject their opinion on anything and everything even if it is out of their true expertise.

Nice Guy Eddie would have bee the loudest one of them a few years back…after that he started to become Not So Nice Guy Eddie…

 

[PaPaG]

Nice Guy Eddie would have bee the loudest one of them a few years back…after that he started to become Not So Nice Guy Eddie…

I don't know who he is and don't remember anything he may have posted.

 

[Good Stuff]

Let me tell you guys about automated ones

Smart money gets “Smart Tint” if it doesn’t change with a remote you’re poor….

I’m poor

 

[DRYHEAT]

I always got a kick out of that commercial, classic irony.

 

[PaPaG]

Sure, everything is just fine. US Inflation rate report 9.1%, it is the highest it has been since 1981, Places like Phoenix 12.3% just crazy.

 

[Englewood]

Sure, everything is just fine. US Inflation rate report 9.1%, it is the highest it has been since 1981, Places like Phoenix 12.3% just crazy.

Mind blowing. Crazy story about Phoenix. One of my agents bought tons of houses in Phoenix back in 2010. $50k some of em. He is in escrow selling them as a whole package to a hedge fund for 28m cash.

Why would a hedge fund be committing that much, in that market, right now?

 

[attitude]

Mind blowing. Crazy story about Phoenix. One of my agents bought tons of houses in Phoenix back in 2010. $50k some of em. He is in escrow selling them as a whole package to a hedge fund for 28m cash.

Why would a hedge fund be committing that much, in that market, right now?

Maybe management wants to downgrade to more sensible housing before the economy crashes?

 

[LargeOrangeFont]

Maybe management wants to downgrade to more sensible housing before the economy crashes?

I didn’t know 2FF ran a hedge fund.

 

[attitude]

I didn’t know 2FF ran a hedge fund.

I wouldn’t put buying and selling hedge funds past that guy. Lol

 

[CarolynandBob]

I think those that say people are not going to walk away from equity or a 3% loan just to go rent are missing the problem of inflation.

Those that bought and got an FHA and put the minimum down and were at the top of the DTI ratio. They are going to get squeezed by rising gas and food prices. Have to eat and get to work, so the house payment doesn't get paid. Even if they put 20% down. How are they going to access the equity? They probably won't qualify for a heloc or a refi. They could try to sell, but then you have real estate and closing cost.

So they have to move to a cheaper area. This scenario is without losing your job.

My sons is probably going to be in this situation soon. He didn't listen to me when I told him the market is too high to buy a house. He bought last Feb. I know he just barley qualified and gas prices are killing him.

Now I have to decide if we are going to bail him out or let him get the education the hard way. I doubt we will help him, but I will make sure the grandkids do not do with out.

 

[LargeOrangeFont]

L

I think those that say people are not going to walk away from equity or a 3% loan just to go rent are missing the problem of inflation.

Those that bought and got an FHA and put the minimum down and were at the top of the DTI ratio. They are going to get squeezed by rising gas and food prices. Have to eat and get to work, so the house payment doesn't get paid. Even if they put 20% down. How are they going to access the equity? They probably won't qualify for a heloc or a refi. They could try to sell, but then you have real estate and closing cost.

So they have to move to a cheaper area. This scenario is without losing your job.

My sons is probably going to be in this situation soon. He didn't listen to me when I told him the market is too high to buy a house. He bought last Feb. I know he just barley qualified and gas prices are killing him.

Now I have to decide if we are going to bail him out or let him get the education the hard way. I doubt we will help him, but I will make sure the grandkids do not do with out.

Since we are painting with the broadest brush possible here…

What you described really is only a problem for people that bought in the last 24 months at best.

There are a decade worth of home purchases prior at low rates. And since we are broad brushing, they have a ton of equity and a payment lower than rent, or pulled money out and still have a relatively low payment.

 

[Runs2rch]

L


Since we are painting with the broadest brush possible here…

What you described really is only a problem for people that bought in the last 24 months at best.

There are a decade worth of home purchases prior at low rates. And since we are broad brushing, they have a ton of equity and a payment lower than rent, or pulled money out and still have a relatively low payment.

Doesn't matter how low your payment is if you can't cover it. Plenty of people I know are getting deeper and deeper into CC debt. Just to afford food and fuel.

 

[LargeOrangeFont]

Doesn't matter how low your payment is if you can't cover it. Plenty of people I know are getting deeper and deeper into CC debt. Just to afford food and fuel.

Those people will pay their house payment before the CC bill.

No one said there won’t be some pain.

 

[PaPaG]

Mind blowing. Crazy story about Phoenix. One of my agents bought tons of houses in Phoenix back in 2010. $50k some of em. He is in escrow selling them as a whole package to a hedge fund for 28m cash.

Why would a hedge fund be committing that much, in that market, right now?

You should read what BlackRock and Vanguard and State Street have been doing as investment management firms. They are gobbling up all the real estate that they can, I have read that they even buy in certain markets with up to 20% offers to push out the individual buyers (their entire goal is to control rental prices across the US). If you put them together they control a collective of $15 trillion dollars in assets, roughly 70% of the US GDP. I have a few clients that buy 100-300 Million dollar apartment complexes all over the US and are some of the largest property management firms in the world, they get offers from one of these three monster firms to buy their entire portfolio's at one time.

 

[Runs2rch]

Those people will pay their house payment before the CC bill.

No one said there won’t be some pain.

Agree. You can only tread water for so long though.

 

[thetub]

You should read what BlackRock and Vanguard and State Street have been doing as investment management firms. They are gobbling up all the real estate that they can, I have read that they even buy in certain markets with up to 20% offers to push out the individual buyers (their entire goal is to control rental prices across the US). If you put them together they control a collective of $15 trillion dollars in assets, roughly 70% of the US GDP. I have a few clients that buy 100-300 Million dollar apartment complexes all over the US and are some of the largest property management firms in the world, they get offers from one of these three monster firms to buy their entire portfolio's at one time.

yup housing and rentals are trading like a commodities ...

its the Wal Marts and Amazons of housing....

own nothing and love it

 

[angiebaby]

L


Since we are painting with the broadest brush possible here…

What you described really is only a problem for people that bought in the last 24 months at best.

There are a decade worth of home purchases prior at low rates. And since we are broad brushing, they have a ton of equity and a payment lower than rent, or pulled money out and still have a relatively low payment.

Based on the market, I would say a lot of people bought in the past 24 months.

 

[LargeOrangeFont]

Based on the market, I would say a lot of people bought in the past 24 months.

I agree, but orders of magnitude more bought in the 12 years prior to 2 years ago.

And what real options do they have? Uproot and move to another market in another state with less opportunity during a recession because of short term financial pain? Many did that in the last recession yes, but its not like the population of CA dropped at all until the last handful of years, and those people in the last handful of years were moving because they chose to, not due to recession.

 

[TPC]

Crankshaft Manor was appraised in the mid $800's a year ago. I still haven't processed that or really believe it.

 

[LargeOrangeFont]

Crankshaft Manor was appraised in the mid $800's a year ago. I still haven't processed that or really believe it.

I've been schooled by some of RDPs most astute investors that yore equity is fake money anyway.

You have put quite a bit of infrastructure upgrades in since then, no? Solar, power walls, etc?

 

[angiebaby]

I agree, but orders of magnitude more bought in the 12 years prior to 2 years ago.

And what real options do they have? Uproot and move to another market in another state with less opportunity during a recession because of short term financial pain? Many did that in the last recession yes, but its not like the population of CA dropped at all until the last handful of years, and those people in the last handful of years were moving because they chose to, not due to recession.

I agree that most of those who have low-interest rates and affordable mortgage payments will hold in the near future, even if their equity shrinks and they are temporarily upside-down.

However, I think what has not been discussed yet is that if the home sales market dries to a trickle, construction workers will get laid off. That is a huge part of our economy, especially for those in the Southwest. Additionally, when people move, they purchase new furniture, bedding, towels, appliances, and televisions. They go to Home Depot and get paint, new light fixtures, plumbing fixtures, patio decorations, and landscaping. All of those things will dry up also, potentially leading to layoffs at those stores and the factories that manufacture those items. This snowballs. I'm not saying that is absolutely what is going to happen, but it's certainly a possibility. I've seen this movie before. When people stop purchasing homes in this nation, bad shit happens.

But to your point, if you are playing the long game and have an affordable mortgage (or no mortgage) and don't lose your job, you'll come out fine and have the security of a roof over your head. Barring the dollar collapsing or war, your property value will eventually rebound.

 

[LargeOrangeFont]

I agree that most of those who have low-interest rates and affordable mortgage payments will hold in the near future, even if their equity shrinks and they are temporarily upside-down.

However, I think what has not been discussed yet is that if the home sales market dries to a trickle, construction workers will get laid off. When people move, they purchase new furniture, bedding, towels, appliances, and televisions. They go to Home Depot and get paint, new light fixtures, plumbing fixtures, patio decorations, and landscaping. All of those things will dry up also, potentially leading to layoffs at those stores and the factories that manufacture those items. This snowballs. I'm not saying that is absolutely what is going to happen, but it's certainly a possibility. I've seen this movie before. When people stop purchasing homes in this nation, bad shit happens.

But to your point, if you are playing the long game and have an affordable mortgage (or no mortgage) and don't lose your job, you'll come out fine and have the security of a roof over your head. Barring the dollar collapsing or war, your property value will eventually rebound.

We are in violent agreement. There will be layoffs but to what extent no one yet knows. The economy is still gaining jobs. I still see help wanted signs. There are pockets of the country where home supply is higher than others, but as of now there would be an economic fall just to get back to "normal". I guess some would call that a correction. And I guess a correction is the soft landing everyone is hoping for, but that still means pain for a not insignificant amount of people.

 

[monkeyswrench]

I agree that most of those who have low-interest rates and affordable mortgage payments will hold in the near future, even if their equity shrinks and they are temporarily upside-down.

However, I think what has not been discussed yet is that if the home sales market dries to a trickle, construction workers will get laid off. That is a huge part of our economy, especially for those in the Southwest. Additionally, when people move, they purchase new furniture, bedding, towels, appliances, and televisions. They go to Home Depot and get paint, new light fixtures, plumbing fixtures, patio decorations, and landscaping. All of those things will dry up also, potentially leading to layoffs at those stores and the factories that manufacture those items. This snowballs. I'm not saying that is absolutely what is going to happen, but it's certainly a possibility. I've seen this movie before. When people stop purchasing homes in this nation, bad shit happens.

But to your point, if you are playing the long game and have an affordable mortgage (or no mortgage) and don't lose your job, you'll come out fine and have the security of a roof over your head. Barring the dollar collapsing or war, your property value will eventually rebound.

How dare you bring logic into what the financiers deem as a wonderful market!

The snowball effect has started in some areas just with the first fed move. I've seen people pull out of spec home projects, and will let the dirt sit. Problem with that, all the aforementioned blue collar crew not getting paid to build. Our current market is over priced, and dependant upon others moving here. I can see why investors would hold. There has come a different vibe amongst some contractors. The more experienced ones are head down, hustle, "make it while you can". The younger ones out here have been saying it's slowed down a little, but it will pick up...happy to catch a break.

 

[bentprops]

Like yore office, only 2/6 people in the country are idiots. The other 4 people will be fine.

its the 2 idiots or 33% the screw it all up for the rest of us.

 

[LargeOrangeFont]

its the 2 idiots or 33% the screw it all up for the rest of us.

Always.

 

[bentprops]

Mind blowing. Crazy story about Phoenix. One of my agents bought tons of houses in Phoenix back in 2010. $50k some of em. He is in escrow selling them as a whole package to a hedge fund for 28m cash.

Why would a hedge fund be committing that much, in that market, right now?

Plaza accord 2.0

 

[PaPaG]

How dare you bring logic into what the financiers deem as a wonderful market!

The snowball effect has started in some areas just with the first fed move. I've seen people pull out of spec home projects, and will let the dirt sit. Problem with that, all the aforementioned blue collar crew not getting paid to build. Our current market is over priced, and dependant upon others moving here. I can see why investors would hold. There has come a different vibe amongst some contractors. The more experienced ones are head down, hustle, "make it while you can". The younger ones out here have been saying it's slowed down a little, but it will pick up...happy to catch a break.

Quicken just surveyed and they just reported that 69% of home buyers are rethinking or actually pulling out of buying a home right now, Mortgage banker association also reported that mortgage applications fell 18% year over year as of July 8th, also seeing deals falling through due to high interest rates at the highest rate since the pandemic started, home prices starting to decline, and folks waving the comps and appraisals days seem to be over with the panic frenzy buyers. Not a doom and gloom report just facts on a declining market and soon to be true housing correction, anyone that refuses to understand, research, follow the trend, or admit that facts are real and correct need to do some research and just be careful and aware if they are a buyer and to go into any deal with their eyes open. Markets go up and down just be careful folks.

 

[PaPaG]

Plaza accord 2.0

Scary Stuff....

 

[CarolynandBob]

L


Since we are painting with the broadest brush possible here…

What you described really is only a problem for people that bought in the last 24 months at best.

There are a decade worth of home purchases prior at low rates. And since we are broad brushing, they have a ton of equity and a payment lower than rent, or pulled money out and still have a relatively low payment.

Serious question. How are they going to access the equity? If they cash out refi then their whole payment goes up. If they get a heloc and pay off credit cards, that is usually only temporary and they will run up the cards again. As someone said we have see this game before.

I do not think I am painting with the broadest brush. A whole lot of people bought in the last 24 months. I HOPE it doesn't happen. I HOPE my son doesn't lose his. I am struggling with the decision to bail him out or not. I am 90% sure I won't, he needs to learn the lessens that I taught him in the past, but he didn't believe me.

 

[westair]

Quicken just surveyed and they just reported that 69% of home buyers are rethinking or actually pulling out of buying a home right now, Mortgage banker association also reported that mortgage applications fell 18% year over year as of July 8th, also seeing deals falling through due to high interest rates at the highest rate since the pandemic started, home prices starting to decline, and folks waving the comps and appraisals days seem to be over with the panic frenzy buyers. Not a doom and gloom report just facts on a declining market and soon to be true housing correction, anyone that refuses to understand, research, follow the trend, or admit that facts are real and correct need to do some research and just be careful and aware if they are a buyer and to go into any deal with their eyes open. Markets go up and down just be careful folks.

Wait .... current interest rates are 5%-6% and 69% of home buyers are re-thinking buying because of that!! ... these are certainly crazy times for sure! .... lol .. they could really regret that someday!

 

[kurtis500]

This isnt a larger market indicator, but a good friend of mine in Phoenix called and told me if we plan to sell our house we better get on it asap. The discussion was short and to the point, sell now before the market becomes a buyers market for a while.

The only reason I mention it is he has always been pie-in-the-sky about us buying and selling. The conversation was him finally pulling down the facade and saying I have a very short window to get good money out of our house. This is in the Phoenix market of course but every agent I listen to says prices probably wont drop... But arent they?

 

[LargeOrangeFont]

Serious question. How are they going to access the equity? If they cash out refi then their whole payment goes up. If they get a heloc and pay off credit cards, that is usually only temporary and they will run up the cards again. As someone said we have see this game before.

I do not think I am painting with the broadest brush. A whole lot of people bought in the last 24 months. I HOPE it doesn't happen. I HOPE my son doesn't lose his. I am struggling with the decision to bail him out or not. I am 90% sure I won't, he needs to learn the lessens that I taught him in the past, but he didn't believe me.

They have no access to the equity right now. There are not any cash out refis happening now. They also don't come take you away if you don't pay off your credit cards. If money is in limited supply, CCs are the last thing you pay off. Are there people living on the edge like your son? Absolutely.

A whole lot of people bought in the last 24 months, yes, but thinking they are all in the same position as your son is painting with a broad brush. There are absolutely a number of people that are in that position but it is not the majority yet. Why do I say that? Restaurants are still packed, people are still taking vacations, traveling, and burning discretionary funds. The broad brush response to that is "Everyone is an idiot", and I suppose if that is the conclusion you draw, then that is fine. I am sure that picture will change before everything gets better, but we are in the first inning still and if your son is already pinched that will probably turn into a problem.

Like I have said for years in these RE threads - wake me up when we start net loosing jobs.

 

[LargeOrangeFont]

This isnt a larger market indicator, but a good friend of mine in Phoenix called and told me if we plan to sell our house we better get on it asap. The discussion was short and to the point, sell now before the market becomes a buyers market for a while.

The only reason I mention it is he has always been pie-in-the-sky about us buying and selling. The conversation was him finally pulling down the facade and saying I have a very short window to get good money out of our house. This is in the Phoenix market of course but every agent I listen to says prices probably wont drop... But arent they?

Prices are going to drop, they already have. Depending on who you believe they may drop anywhere from 10-60%.

 

[zhandfull]

Mind blowing. Crazy story about Phoenix. One of my agents bought tons of houses in Phoenix back in 2010. $50k some of em. He is in escrow selling them as a whole package to a hedge fund for 28m cash.

Why would a hedge fund be committing that much, in that market, right now?

Hedge funds, what do they have to lose? Nothing really in my opinion. They charge Managment fees on investor money regardless of yield. Maybe some of these hedge funds will explode in spectacular fashion in the future.

Question is why is the agent selling RE in a high inflationary environment when RE is supposed to be a great hedge?

 

[LargeOrangeFont]

Hedge funds, what do they have to lose? Nothing really in my opinion. They charge Managment fees on investor money regardless of yield. Maybe some of these hedge funds will explode in spectacular fashion in the future.

Question is why is the agent selling RE in a high inflationary environment when RE is supposed to be a great hedge?

Probably because he made his money and wants to go sit on a beach.

 

[Your ad here]

They have no access to the equity right now. There are not any cash out refis happening now. They also don't come take you away if you don't pay off your credit cards. If money is in limited supply, CCs are the last thing you pay off. Are there people living on the edge like your son? Absolutely.

A whole lot of people bought in the last 24 months, yes, but thinking they are all in the same position as your son is painting with a broad brush. There are absolutely a number of people that are in that position but it is not the majority yet. Why do I say that? Restaurants are still packed, people are still taking vacations, traveling, and burning discretionary funds. The broad brush response to that is "Everyone is an idiot", and I suppose if that is the conclusion you draw, then that is fine. I am sure that picture will change before everything gets better, but we are in the first inning still and if your son is already pinched that will probably turn into a problem.

Like I have said for years in these RE threads - wake me up when we start net loosing jobs.

How many people that bought in the last 24 months were previous home owners moving into a new to them house? Were they able to use the equity from the house they moved from into a more expensive house with a lower interest rate and have the same payment?

 

[LargeOrangeFont]

How many people that bought in the last 24 months were previous home owners moving into a new to them house? Were they able to use the equity from the house they moved from into a more expensive house with a lower interest rate and have the same payment?

Exactly what I am talking about. I don't think we have that answer but it is a significant amount.

 

[LargeOrangeFont]

You should read what BlackRock and Vanguard and State Street have been doing as investment management firms. They are gobbling up all the real estate that they can, I have read that they even buy in certain markets with up to 20% offers to push out the individual buyers (their entire goal is to control rental prices across the US). If you put them together they control a collective of $15 trillion dollars in assets, roughly 70% of the US GDP. I have a few clients that buy 100-300 Million dollar apartment complexes all over the US and are some of the largest property management firms in the world, they get offers from one of these three monster firms to buy their entire portfolio's at one time.

This is exactly why rents will never go down, and in fact trend up more aggressively in the future.

 

[c_land]

I just finished listening to an interview with Ivy Zelman this morning. Her firm describes themselves as the preeminent boutique research firm in the housing sector. Ivy Called the top in 06 and the bottom in 2012. Here are my notes

• Where are we in the cycle?
  • Housing has peaked, new home/existing sales, deceleration is demand driven.
  • Market is rapidly deteriorating. Impact of surge in rates.
  • Continuation and more rapid in any period due to the information flow that is available now.
• Is affordability as terrible as it sounds
  • Monthly payment up 50% YOY. Seen a big surge in number of cancellations, and cancellations part of builder scrubbing backlog. Cancellations rates usually between 15-20%, 5% in last 6 months, now at 34% for western states in the last 3 weeks as an average.
  • Significant changes in cancellation rates.
  • Builders in phoenix metro saying cancellation rates at 45%, Orlando at 55%.
• Have we ever seen numbers this high?
  • Yes, during GFC. A lot of the backlog in new homes is spec builds that they were hoping to go into contract at a higher price to capture the difference in material costs during the build
  • Backlog is highest levels since 2006, mostly spec builds that are not yet completed.
• Is supply distorted because of the speculation? With rent spiking, supply number is distorted by speculation NOO,STR, ETC.
  • Q1 cash purchases up 46%, Q4 up 43% YOY
  • Looked through public records and CoreLogic, non-primary buyers are 24% of transactions.
  • Was running 19% pre-covid.
  • The capital follows other capital
  • Private investors speculating are cancelling as well,
  • Listings in phoenix in the last 15 weeks up 220%
    • Adding 1000 new listings a week from the deep pocket investors that are acting as they are distressed.
    • Costs of owning these properties have gone up and they don’t want to own as much
  • Weak and seasonal worse demand
• Speed and severity of rate of change is shocking. Hitting record rate of change on metrics. Consumers have access to a data stream that is moving the market at a rapid pace.
• I buyers are the biggest sellers in the marker right now. Shocking how fast I buyers and private investors are trying to exit.
• 
  
• Do you think more STR will try and head for the exits soon? (Jackson)
  • Yes, and we are trying to get ahead of what’s happening
  • Local buyers have been shut out by STR.
  • No local labor for these STR hotspot
  • Todays buyers cannot afford the homes on the incomes these areas support.
  • Pricing is headed lower
• Nationally, we are looking for 5% declines in 2023.
  • Regional markets are looking at more severe double digit declines.
  • Expect more rush for the exits
  • Skin in the game is different than GFC, but that will only somewhat mitigate a downturn
• Logan Motashami, discusses a savagely unhealthy market, says inventory doesn’t support declines. Thoughts?
  • Look at inventory as a ratio
  • Inventory as a percent of households low, but the increase by end of year will put us near trendline
  • Velocity is important, end of month how many are for sale, how much of inventory is sold at end of month. 20% historically.
  • 60% in middle of last 2 years, demand was off the charts
  • You need to look at what demand is doing.
  • Inventory is rising, but demand surge was so overwhelming that it changed inventory
  • Supply is now changing so rapidly because demand is changing so rapidly.
• Do you think shadow inventory from delayed foreclosures is a concern?
  • Anyone that purchased from end of 21 to now may be underwater if used an FHA loan
  • Eviction filings so far below normal, if that normalizes where are investors going to find the tenants
  • Complacency in the rental market, reality people that are selling are cashing out to go rent
    • Our view is that backlog and pressure brewing because of investors rushing to the exits.
  • Our projections do not include
  • Anything that goes up in a parabolic
  • More normalized levels and builders think it will just stop at 2019 levels.
  • Housing is more balanced if we exclude backlog, but the market thinks there is a massive deficit.
    • Demographics don’t support the amount we are building without speculation
• Boise home price appreciation is north or 70%, influx of coastal buyers. Local builders there are saying that those people are being asked to return to work.
  • Builders having to cut price, the worse thing that a builder can do because it impacts backlog.
  • Consumer that signed a contract for a higher price looking at a price cut after the fact, cancel
  • Those that signed in the last 6 months aren’t seeing that amount of paper equity.
  • Builder credits to mortgage rates don’t stimulate demand.
  • Consumers now realizing that market has shifted act as a turning a large container ship, it acts the same trying to turn the way back positiv
• Quarterly Land Development survey
  • Lot/land inflation is up 28% Q/Q 21/22
  • Builders now pulling back and underwriting lower margins with land prices
  • Assuming that the market stays the way it is
  • No question that new entrants to the builder space are appreciating the risk in paying up for the land prices
• On Build for rent
  • Building too much in the tertiary markets
  • 20% in phoenix new supply is speculative build for rent
  • These leases are priced higher than buyer.
  • What happens when gas prices spike and they need to commute to the City?
• Canadian analyst in Canada:
  • Surrounding Toronto, peak was February 2022
  • Seen jurisdictions around Toronto prices down $500,000 to date (33%)
  • 5,000 units been shelved by builders so far
  • Influx if foreign buyers have been keeping a floor on prices
  • Prices have plummeted, so the numbers don’t work
• Ivy, are you seeing any foreign capital inflow to US cities?
  • We ask brokers in our survey about foreign demand, we haven’t seen any spikes.
  • Still about 2014 levels.
• Ivy On multifamily
  • Input cost inflation is so inflationary that a lot of deals don’t pencil now
  • Backlog cited in multifamily, is highest since 1970
  • Backlog for us means they broke ground, once they break ground those deals are getting completed
  • By 23/24 we will still see Multifamily coming online that will pressure lease prices
  • Cap rates are expanding, but we are finally in price discovery mode
  • When there was 20 bidders for projects, now there is crickets.
• Builder on the call comments:
  • Builder in Texas has 300 under construction
  • Threw the kitchen sink at their incentives outside of prices dropping
  • Sold a net of 15
  • No incentive has meaningfully created additional sales
  • Consumers are not responding, and builders aren’t feeling confident
    • Ivy responds
      • Incentives may stimulate demand in other markets
      • Austin phoenix, Boise are turning markets right now.
      • Where it is working it probably wont last
      • Abortions should be 1 sale per week for price appreciation
        • Those peaked and went above GFC rates
        • 60% of builders were limiting sales, that’s now down to 20%
      • Incredible amount of pressure on absorptions, last Wednesday was .4 per week
        • Anything below 1 there is no pricing power
        • Some of the builders are seeing low absorptions not seen since the GFC
• Do you think this round of pain is different than GFC on the other side?
  • Builders wrote off 50% in the GFC
  • Land Options compared to GFC are the same levels today
    • Smaller projects though
  • Expecting 5-6% write off, in the range of the 1991 cycle.
    • However, we expected 20% in the GFC period and were wrong

 

[c_land]

I think her comments regarding the information flow and the availability of data to consumers is interesting. She described 2008 as a slow bleed and made numerous comments about the rapid nature about what is unfolding today.

"The speed and severity of the rate of change is exponentially more than what we saw in the gfc"

"The rapid pace we think is coming from the non primary sellers"

 

[PaPaG]

I just finished listening to an interview with Ivy Zelman this morning. Her firm describes themselves as the preeminent boutique research firm in the housing sector. Ivy Called the top in 06 and the bottom in 2012. Here are my notes

• Where are we in the cycle?
  • Housing has peaked, new home/existing sales, deceleration is demand driven.
  • Market is rapidly deteriorating. Impact of surge in rates.
  • Continuation and more rapid in any period due to the information flow that is available now.
• Is affordability as terrible as it sounds
  • Monthly payment up 50% YOY. Seen a big surge in number of cancellations, and cancellations part of builder scrubbing backlog. Cancellations rates usually between 15-20%, 5% in last 6 months, now at 34% for western states in the last 3 weeks as an average.
  • Significant changes in cancellation rates.
  • Builders in phoenix metro saying cancellation rates at 45%, Orlando at 55%.
• Have we ever seen numbers this high?
  • Yes, during GFC. A lot of the backlog in new homes is spec builds that they were hoping to go into contract at a higher price to capture the difference in material costs during the build
  • Backlog is highest levels since 2006, mostly spec builds that are not yet completed.
• Is supply distorted because of the speculation? With rent spiking, supply number is distorted by speculation NOO,STR, ETC.
  • Q1 cash purchases up 46%, Q4 up 43% YOY
  • Looked through public records and CoreLogic, non-primary buyers are 24% of transactions.
  • Was running 19% pre-covid.
  • The capital follows other capital
  • Private investors speculating are cancelling as well,
  • Listings in phoenix in the last 15 weeks up 220%
    • Adding 1000 new listings a week from the deep pocket investors that are acting as they are distressed.
    • Costs of owning these properties have gone up and they don’t want to own as much
  • Weak and seasonal worse demand
• Speed and severity of rate of change is shocking. Hitting record rate of change on metrics. Consumers have access to a data stream that is moving the market at a rapid pace.
• I buyers are the biggest sellers in the marker right now. Shocking how fast I buyers and private investors are trying to exit.
• 
  
• Do you think more STR will try and head for the exits soon? (Jackson)
  • Yes, and we are trying to get ahead of what’s happening
  • Local buyers have been shut out by STR.
  • No local labor for these STR hotspot
  • Todays buyers cannot afford the homes on the incomes these areas support.
  • Pricing is headed lower
• Nationally, we are looking for 5% declines in 2023.
  • Regional markets are looking at more severe double digit declines.
  • Expect more rush for the exits
  • Skin in the game is different than GFC, but that will only somewhat mitigate a downturn
• Logan Motashami, discusses a savagely unhealthy market, says inventory doesn’t support declines. Thoughts?
  • Look at inventory as a ratio
  • Inventory as a percent of households low, but the increase by end of year will put us near trendline
  • Velocity is important, end of month how many are for sale, how much of inventory is sold at end of month. 20% historically.
  • 60% in middle of last 2 years, demand was off the charts
  • You need to look at what demand is doing.
  • Inventory is rising, but demand surge was so overwhelming that it changed inventory
  • Supply is now changing so rapidly because demand is changing so rapidly.
• Do you think shadow inventory from delayed foreclosures is a concern?
  • Anyone that purchased from end of 21 to now may be underwater if used an FHA loan
  • Eviction filings so far below normal, if that normalizes where are investors going to find the tenants
  • Complacency in the rental market, reality people that are selling are cashing out to go rent
    • Our view is that backlog and pressure brewing because of investors rushing to the exits.
  • Our projections do not include
  • Anything that goes up in a parabolic
  • More normalized levels and builders think it will just stop at 2019 levels.
  • Housing is more balanced if we exclude backlog, but the market thinks there is a massive deficit.
    • Demographics don’t support the amount we are building without speculation
• Boise home price appreciation is north or 70%, influx of coastal buyers. Local builders there are saying that those people are being asked to return to work.
  • Builders having to cut price, the worse thing that a builder can do because it impacts backlog.
  • Consumer that signed a contract for a higher price looking at a price cut after the fact, cancel
  • Those that signed in the last 6 months aren’t seeing that amount of paper equity.
  • Builder credits to mortgage rates don’t stimulate demand.
  • Consumers now realizing that market has shifted act as a turning a large container ship, it acts the same trying to turn the way back positiv
• Quarterly Land Development survey
  • Lot/land inflation is up 28% Q/Q 21/22
  • Builders now pulling back and underwriting lower margins with land prices
  • Assuming that the market stays the way it is
  • No question that new entrants to the builder space are appreciating the risk in paying up for the land prices
• On Build for rent
  • Building too much in the tertiary markets
  • 20% in phoenix new supply is speculative build for rent
  • These leases are priced higher than buyer.
  • What happens when gas prices spike and they need to commute to the City?
• Canadian analyst in Canada:
  • Surrounding Toronto, peak was February 2022
  • Seen jurisdictions around Toronto prices down $500,000 to date (33%)
  • 5,000 units been shelved by builders so far
  • Influx if foreign buyers have been keeping a floor on prices
  • Prices have plummeted, so the numbers don’t work
• Ivy, are you seeing any foreign capital inflow to US cities?
  • We ask brokers in our survey about foreign demand, we haven’t seen any spikes.
  • Still about 2014 levels.
• Ivy On multifamily
  • Input cost inflation is so inflationary that a lot of deals don’t pencil now
  • Backlog cited in multifamily, is highest since 1970
  • Backlog for us means they broke ground, once they break ground those deals are getting completed
  • By 23/24 we will still see Multifamily coming online that will pressure lease prices
  • Cap rates are expanding, but we are finally in price discovery mode
  • When there was 20 bidders for projects, now there is crickets.
• Builder on the call comments:
  • Builder in Texas has 300 under construction
  • Threw the kitchen sink at their incentives outside of prices dropping
  • Sold a net of 15
  • No incentive has meaningfully created additional sales
  • Consumers are not responding, and builders aren’t feeling confident
    • Ivy responds
      • Incentives may stimulate demand in other markets
      • Austin phoenix, Boise are turning markets right now.
      • Where it is working it probably wont last
      • Abortions should be 1 sale per week for price appreciation
        • Those peaked and went above GFC rates
        • 60% of builders were limiting sales, that’s now down to 20%
      • Incredible amount of pressure on absorptions, last Wednesday was .4 per week
        • Anything below 1 there is no pricing power
        • Some of the builders are seeing low absorptions not seen since the GFC
• Do you think this round of pain is different than GFC on the other side?
  • Builders wrote off 50% in the GFC
  • Land Options compared to GFC are the same levels today
    • Smaller projects though
  • Expecting 5-6% write off, in the range of the 1991 cycle.
    • However, we expected 20% in the GFC period and were wrong

IF this is NOT a MIKE DROP on the direction of the market I DON'T KNOW WHAT IS....Great Post.

 

[LargeOrangeFont]

I think her comments regarding the information flow and the availability of data to consumers is interesting. She described 2008 as a slow bleed and made numerous comments about the rapid nature about what is unfolding today.

"The speed and severity of the rate of change is exponentially more than what we saw in the gfc"

"The rapid pace we think is coming from the non primary sellers"

Thanks for those notes, that was really insightful!!

 

[MSum661]

Hedge funds, what do they have to lose? Nothing really in my opinion. They charge Managment fees on investor money regardless of yield. Maybe some of these hedge funds will explode in spectacular fashion in the future.

Question is why is the agent selling RE in a high inflationary environment when RE is supposed to be a great hedge?

The big Hedge Funds can play this RE market it several ways.

They come in outbiding high on the buy side for properties which then positions them to use derivatives as a hedging tool to go short on the properties they own to the downside. They'll make money on the spreads no matter what their RE holding do. The higher the price paid for their RE property holdings sets up gains to the downside if the RE market tanks. Right now, they're banking on a pullback by selling.

Its what big Wall Street Hedge Funds do. They make markets.

 

[LargeOrangeFont]

IF this is NOT a MIKE DROP on the direction of the market I DON'T KNOW WHAT IS....Great Post.

My major takeaway was they they are projecting a 5% average price drop in 2023 and double digit drop in some markets. That is not even as much as I would have guessed.

Also they say this is different than the GFC in many ways.

 

[Englewood]

Question is why is the agent selling RE in a high inflationary environment when RE is supposed to be a great hedge?

I was asking a legitimate question. I was genuinely curious why a hedge fund would buy at the peak?

I wouldn’t touch a house in Phoenix even with someone else’s money. Of course, unless it was a primary residence for the long haul.

Ive always had the position that we will give back the covid gains (more in 2nd home areas). I’m just an average joe with an opinion.

I’m gonna let you guys take this from here.

 

[Havasu blue label]

It’s fake till you sell

 

[EmpirE231]

They have no access to the equity right now. There are not any cash out refis happening now. They also don't come take you away if you don't pay off your credit cards. If money is in limited supply, CCs are the last thing you pay off. Are there people living on the edge like your son? Absolutely.

A whole lot of people bought in the last 24 months, yes, but thinking they are all in the same position as your son is painting with a broad brush. There are absolutely a number of people that are in that position but it is not the majority yet. Why do I say that? Restaurants are still packed, people are still taking vacations, traveling, and burning discretionary funds. The broad brush response to that is "Everyone is an idiot", and I suppose if that is the conclusion you draw, then that is fine. I am sure that picture will change before everything gets better, but we are in the first inning still and if your son is already pinched that will probably turn into a problem.

Like I have said for years in these RE threads - wake me up when we start net loosing jobs.

you used to say "wake me up when we start shedding jobs".... now it's net jobs? You really trust the governments unemployment numbers?...... I trust them as much as I trusted the COVID #'s.

Most businesses I visit are under staffed, limited hours, longer hold times etc etc.... where are all these people working at? because I don't see them out in the real world.

I'm still noticing waits at restaurants etc, but I look around and see empty tables.... most are "busy" because of limited staff, and running behind on service compared to pre-covid times. This is what I see.

I do agree though on still seeing people on vacation, freeways are still packed etc etc.....but humans are herd animlas.... it's all good, as long as everyone else acts like it's all good.... but when panic sets in, the masses panic. There are people out there still going on vacations because that's what they're used to every summer, and the Jones down the street just got back from their vacation........ can't cancel ours.... just charge it to that visa / mastercard. I'd like to think that most people are well positioned and don't spend 95% of their income, and they save for rainy days.... but we all know this is not true. Some do, but they are the minority. I know tons of people that slapped in 100k pools in the last 2 years.... it's not because they had cash laying around. cash-out refi's we're peaking the last 24 months... and I bet most people didn't do something smart with that money they pulled out.

another thing most people do not discuss..........everyone who wanted a pool, new concrete, new furniture, and aluminum patio, some patio furniture, a new kitchen etc etc etc ........ almost everyone did this in the last 24 months....... meaning, what do those industries look like going into the near future?? The money has been spent and the goods received. Even without a "recession" a lot of those industries were set for a major slow down, due to everyone buying the market in 24 months due to COVID, rather than spread that same amount of business over the next 6-8 years.

 

[LargeOrangeFont]

you used to say "wake me up when we start shedding jobs".... now it's net jobs? You really trust the governments unemployment numbers?...... I trust them as much as I trusted the COVID #'s.

Most businesses I visit are under staffed, limited hours, longer hold times etc etc.... where are all these people working at? because I don't see them out in the real world.

I'm still noticing waits at restaurants etc, but I look around and see empty tables.... most are "busy" because of limited staff, and running behind on service comapred to pre-covid times. This is what I see.

I do agree though on still seeing people on vacation, freeways are still packed etc etc.....but humans are herd animlas.... it's all good, as long as everyone else acts like it's all good.... but when panic sets in, the masses panic. There are people out there still going on vacations because that's what they're used to every summer, and the Jones down the street just got back from their vacation........ can't cancel ours.... just charge it to that visa / mastercard. I'd like to think that most people are well positioned and don't spend 95% of their income, and they save for rainy days.... but we all know this is not true. Some do, but they are the minority. I know tons of people that slapped in 100k pools in the last 2 years.... it's not because they had cash laying around. cash-out refi's we're peaking the last 24 months... and I bet most people didn't do something smart with that money they pulled out.

another thing most people do not discuss..........everyone who wanted a pool, new concrete, new furniture, and aluminum patio, some patio furniture, a new kitchen etc etc etc ........ almost everyone did this in the last 24 months....... meaning, what do those industries look like going into the near future?? The money has been spent and the goods received. Even without a "recession" a lot of those industries were set for a major slow down, due to everyone buying the market in 24 months due to COVID, rather than spread that same amount of business over the next 6-8 years.

The .gov employment numbers have always been a farce.

What I said before and say now is the same thing. I still see businesses all over looking for help. What you explained illustrates my point. Servers aren't homeowners, they are sitting at home or wherever, and higher paying positions are still understaffed. We are not shedding jobs, we are not net loosing jobs yet. I would expect 50K mortgage processors got laid off this year.. there are no mortgages to do right now. but we are still hiring, for now anyway.

Now we are back to the broad brush strokes of "almost everyone"? Pools didn't exist before 2020? No one got remodels before then? Most people weren't doing "smart money" things with their cash out refi monies in the last 2 years? Yes there has been high demand for stuff in the last 2 years, but it didn't all happen since 2020.

We all keep going round and round on this - you keep saying everyone is dumb and leveraged to the hilt, and is going to get bit. I agree many will, but it is not going to be the majority of people in the country that need to exit their homes. The bottom line of this thread is that you need people exiting their homes in huge numbers for RE prices to drop significantly. And that may happen in some markets, and they may drop significantly. If a 5% average drop nationally in 2023 happens as predicted above, I have no reason to get that worked up over it, and all the RDP Smart Money won't be buying anything.. they will be sitting with their arms crossed on the sidelines.

 

[c_land]

My major takeaway was they they are projecting a 5% average price drop in 2023 and double digit drop in some markets.

I have to sit through it for work and then report on it, so figured i would share my notes here. She's more heavily involved with builders (which impacts our firm) so she is a good resource.

 

[LargeOrangeFont]

I have to sit through it for work and then report on it, so figured i would share my notes here. She's more heavily involved with builders (which impacts our firm) so she is a good resource.

Again thanks for pasting the notes here!