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I Don’t Think There’s Any Way I Could Lose Money

A report from the Wall Street Journal. “Small-time investors who flooded into real estate in the past decade to take advantage of low borrowing costs and rising home values are starting to cut back.”

“The number of new home loans issued with terms of three years or less, typically used by investors looking to make a quick profit, dropped by 11% in the July-to-September period from a year earlier. It was the smallest amount since the second quarter of 2015, according to Attom Data Solutions.”

“The fix-and-flip crowd, numbering some 38,000, has been on the front lines of this shift. In recent months, they have seen a market in which home-price appreciation has slowed but houses remain expensive enough that it is hard to squeeze out a profit.”

“Jean Norton, of Austin, Texas, has invested in dozens of properties since she got into real-estate investing in 2009, typically fixing properties up and then selling them. But she hasn’t invested in a property since doing a deal last year in Mobile, Ala. She said she is holding out for a bigger dip in the market to get back in.”

“‘There’s been a boom for the last couple of years, and we’ve all been waiting for it to slow down,’ she said. ‘I think this is the first year we are seeing some softening.'”

“Brian Stike, an assistant principal who lives in Asbury Park, N.J., recently bought an investment property he believed was undervalued. Following the same strategy, he fixed it up himself and with the help of some friends. He is now renting it out to earn income.”

“‘Even if the market crashes, I don’t think there’s any way I could lose money in the long run,’ he said. ‘I think it is very safe.'”

The Orange County Register in California. “Riverside County’s existing homes are taking an estimated 49 more days to sell this year as 25 percent more residences are listed for sale. Here’s what ReportsOnHousing showed — data from Nov. 29 — for Riverside County.”

Supply: 9,846 listings, up 1,951 residences for sale in a year or 25 percent; and up 9 percent vs. 6-year average. Demand: 2,039 new escrows, down 441 sales contracts in 12 months or 18 percent; and down 14 percent vs. previous six years.”

Market time: 145 days vs. 96 a year earlier and an average 121 days in 2012-2017. Elsewhere in Southern California: Los Angeles County: 49 more days to sell in a year to 107 days; supply up 48 percent. “

Orange County: 62 more days to 124 days; supply up 58 percent. San Bernardino County: 49 more days to 123 days; supply up 63 percent.”

This Post Has 46 Comments
  1. Where’s all this supply coming from? It’s been months and it just keeps piling up, everywhere! How is it possible for markets all across the US, based on fundamentals (so we were told for years) to turn so quickly, all at the same time?

      1. Yep, and given that short term rental income has driven sales prices to some extent, then that will be another price support that falls.

        The near future could be epic. Different torpedos than caused last debacle, but torpedos none the less.

    1. Is it the smallish interest rate bump, to a level that is still well below historic norms, or is it the recognition of slowing price appreciation that is killing demand as inventories swell?

  2. “‘Even if the market crashes, I don’t think there’s any way I could lose money in the long run,’ he said. ‘I think it is very safe.’”

    Brian, your innocence is touching. I bet you think your CALPERS retirement fund is still generating 8% returns every year, too.

  3. “Even if the market crashes, I don’t think there’s any way I could lose money in the long run,’ he said. ‘I think it is very safe.’”

    You can’t imagine how many times I heard this in 2005 with friends and associates in discussions. I was not popular in my opinions. Had seen it all back during S&L crisis and tried to tell them at that time. Had friends get slaughtered there after. One with 15 properties eventually lost them all along with marriage. Was plain hell.

    Has anyone noticed the news cycle for this? Is it me? Or does it seem now that a 2 week old news story is too old to be valid? Such is the rate that conditions are changing. In short period going, from: “so and so market booming” to “inventory shortage crimping sales” to “sales slowing, but prices increasing” to “YOY increases slowing, but no worries of falling prices” to “modest drops in prices, but no indication of a bubble” etc.

    A logical progression but occuring rapidly. It seems now that you need to check news that is less than a day or two old for valid update. Anyone else agree?

    1. 100% agree. It has been interesting to see the 30-year dip from about 4.9% to about 4.5%. I will be curious to see if Powell sticks with the rate hike. I have doubts about the 3 planned next year. I was a bit upset to miss out on a 5-year CD at 4% with some money that I had. Rates should continue to normalize, and maybe they will if the balance sheet normalization of $50 billion keeps happening. But I think DJT is going to cry bloody murder for the Fed to stop hiking and start loosening.

      1. With DJT threatening to fire him, perhaps Powell feels he has no choice but to put rate hikes on hold?

        1. Powell has been trying to act like a responsible central banker and refurbish the Fed’s shattered credibility. If the Fed fails to raise interest rates in December, “the markets” will correctly see this as a sign of panic and the sell-off will only accelerate, albeit after a short-lived dead cat bounce due to a knee-jerk reaction by algos and a burst of short-covering buying.

          1. “Powell has been trying to act like a responsible central banker and refurbish the Fed’s shattered credibility.”

            Powell better not act like a cut dog.

          1. I don’t Trump is allowed by law to fire Powell. The Fed is supposed to be independent, although almost all of its senior officials are “former” Goldman Sachs officials who seem to act as if enriching their “former” employer was their sole mandate.

          2. I have to disagree with Shiller that the post-2009 housing boom is somehow distinct from the pre-2007 Housing Bubble, aside from timing and root cause. The pre-2007 bubble arose organically as a consequence of numerous efforts in the financial sector to package and offload subprime loans on unsuspecting greater fools. The post-2009 episode was in response to the Fed’s deliberate financial engineering through Quantitative Easing with the express purpose of reflating housing to Bubble levels and beyond. Thanks to the Fed’s intervention, the mania thinking that underpinned the Housing Bubble never really went away. Hence the 22-year span from 1996-2018 really only comproses one long mania, punctuated by a large dips buying opportunity in the 2007-2012 years, followed by financially-engineered bubble reflation and absent the capitulation stage which marks the end of a mania.

          3. “How long this will last and where it is heading next are impossible to know now.”

            I guess he no longer reads here? Or else he doesn’t believe all the reports documenting the renewed onset of Housing Bubble collapse.

            The Housing Boom Is Already Gigantic. How Long Can It Last?
            By Robert J. Shiller
            Dec. 7, 2018

            We are, once again, experiencing one of the greatest housing booms in United States history.

            How long this will last and where it is heading next are impossible to know now.

            But it is time to take notice: My data shows that this is the United States’ third biggest housing boom in the modern era.

            Since February 2012, when the price declines associated with the last financial crisis ended, prices for existing homes in the United States have been rising steadily and enormously. According to the S&P/CoreLogic/Case-Shiller National Home Price Index (which I helped to create) as of September, the prices were 53 percent higher than they were at the bottom of the market in 2012.

            That means, on average, a house that sold for, say, $200,000 in 2012 would bring over $300,000 in September.

            Even after factoring in Consumer Price Index inflation, real existing home prices were up almost 40 percent during that period. That is a substantial increase in less than seven years.

            In fact, based on my data, it amounts to the third strongest national boom in real terms since the Consumer Price Index began in 1913, behind only the explosive run-up in prices that led to the great financial crisis of a decade ago, and one connected with World War II and the great postwar Baby Boom.

            The No. 1 boom occurred from February 1997 to October 2006, when real prices of existing United States homes rose 74 percent. This was a period of intense speculative enthusiasm — for houses and for financial instruments based on mortgages as investments — and it was also a time of great regulatory complacency. The term “flipping houses” became popular then. People exploited the boom by buying homes and selling them only months later at a huge profit.

            That boom ended disastrously. Soaring valuations collapsed with a 35 percent drop in real prices for existing homes, ushering in the financial crisis that enveloped the world in 2008 and 2009.

          4. The pre-2007 bubble arose organically … 1996-2018 really only comproses one long mania

            It probably can’t be natural (organic) and at the same time a mania (irrational). Thinking that the actions of men caused a mania is a dangerous vanity, because it implies that mania can be carefully managed and brought safely down in a soft landing.

            Mania can be made worse by the pouring on of accelerant; drugs, alcohol or cheap credit. That only makes the crash more violent. It isn’t the organic cause of mania.

          5. “(organic)”

            Not sure if that’s the best descriptor, but I wanted to contrast bubble expansion based on the decentralized decisions of micro-level economic entities (individual households and firms) versus the Fed’s centrally-planned, top-down financial engineering measures to reflate the Bubble.

      1. I think we’ll see a lot of November metrics which will be ugly YoY, which will get blamed on Thanksgiving, because this is the first time we’ve had Thanksgiving?

        1. The dismal November sales will also be blamed on cold weather, because cold weather in November is unprecedented.

        2. “because this is the first time we’ve had Thanksgiving?”

          That’s why this time it’s different! We have a lot of first times to blame right… amazing some of these excuses we hear from the MSM and RE “experts”

          1. UNsuprisingly, they just used that for the reasoning of why it’s going UP in Chico and surrounding areas…

    2. occuring rapidly

      It seems to be just little hints of this gas balloon sputtering. The sinkhole that we were approaching in 2005 is still there and has grown bigger. Hardly anyone has any idea how huge and deep it is, or they’d be screaming for dear life already at seeing growth stall.

    3. “Or does it seem now that a 2 week old news story is too old to be valid?”

      Nah…the real estate market turns more slowly than a tanker ship. Watching it crash is about as exciting as watching paint dry. Unlike Bitcoin, which has already seen over 80% of its peak valuation go up in smoke over a one-year period, including regular 10% downside corrections within the span of 24 hours, housing will take several years to bottom out, now that it has entered the downhill phase of its cycle.

      1. It wouldnt be surprising to see as dramatic of price declines as we have seen increases of such short periods. 2016-2017-2018 increases could go down just as fast 2019+ I am optimistic even faster given what I have witnessed within the last few months.

    4. No kidding I’ve been thinking the same and refreshing my browser often. This one seems to be unraveling much faster than 07.

      HBB is on the razor’s edge with a constant stream of new material.

      1. “This one seems to be unraveling much faster than 07.”

        All sectors of the economy are now carrying much more debt.

  4. “But she hasn’t invested in a property since doing a deal last year in Mobile, Ala. She said she is holding out for a bigger dip in the market to get back in.”

    Housing is shelter. It depreciates as it decomposes.

    1. as it decomposes.

      Not only that, things become obsolete and out of fashion. For one thing, it is likely that a 3 or 4,000 ft2 money pit will very quickly go out of fashion.

      1. “For one thing, it is likely that a 3 or 4,000 ft2 money pit will very quickly go out of fashion.”

        Good point. God forbid the new shack doesn’t have granite counter tops.

  5. “Prediction$ for titles of this week’s news stories?”

    This is how eyes views it: u$ING an axe, you chop out the counter notch, now swinging away (each swing = a day, a week, a month, yer choice) chop, chop, chop …

    Once yer $atisfied your well 50% through to the counter notch, every swing & a chop comes with an anticipation of felling result$ … (only be mindful of $udden ill wind$ that might a$$ist in the felling effort$ coming sooner than expected!)

  6. I had a realtor tell me today that the ‘dust has officially settled’ in Seattle, and to expect prices to head north this spring.

    I couldn’t decide whether to kill him or laugh.

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