Rawr

Recession coming?

Recommended Posts

Anyone else got a feeling it's not too far away??

 

 

 

us.jpg

eu.jpg

Share this post


Link to post
Share on other sites

I've been saying this for awhile now. Being in the construction industry I get to see how much money people are personally spending. When i show up to their new $650k house and they have 2 new $70k cars in the driveway and are installing a new pool out back, something isn't right, especially when they are both nurses or office staff lol. We are way to busy doing stupid stuff that we were doing right before the last crash. People are spending like crazy and you know they can't afford it. There are at least 8 new neighborhoods around me with houses that all start at $600k. They are definitely not worth that, and people are buying them like crazy and parking new SUVs right outside them. Personal friends of mine, both nurses, paid over 750k for their house in 07, then it crashed and the houses in their neighborhood started sell for $550k. Now they just took money out of their 401k to buy a $550k beach home... people are stupid.

Share this post


Link to post
Share on other sites

Not sure, but more important than home prices themselves are interest rates and underwriting quality. Underwriting has improved massively and interest rates are still low. Credit quality has been pretty good in recent years. No more NINJA loans etc.

Imagine buying a house for $300K that's $100K overvalued. If interest rates were 0% (which they aren't), then you'd have a $1000/month payment after it's all said and done on a 30 year mortgage. That's very, very affordable and it doesn't really matter if it's overvalued because you'll be renting for $1000/month in something much worse anyway. Interest rates are more like 4.5% right now, but that's still pretty low and were in the 3s not that long ago.

House prices have gone up because interest rates have been so low and has allowed people to spend more (ask more). With interest rates climbing, you're going to see housing cooling off, but not necessarily crashing. Also keep in mind that everyone who bought in 2010 is already 8 years into their loan. People who bought in 2014 are 4 years into their loan. Everyone in the last 7-8 years got good deals and locked in low rates, ensuring they are probably nicely into equity by now. The risk of defaults is very low for this enormous pool of loans.

In 2007 and 2008, interest rates were 6.5-7.5%. That's significantly higher than they have been the last 10 years. I'm not a buyer of real estate at these prices, but I'm not predicting a crash/recession either. One year of overpriced loans will not tank the 10 years of good deals and low rates before it, in my opinion.

Share this post


Link to post
Share on other sites
4 hours ago, Destructo said:

Where was consumer confidence and unemployment in 08? I’m no expert, just curious if there is a correlation. 

Saw this on another forum. 

 

The Macro Downgrade Cycle Begins...
Wed, 10/10/2018 - 09:41
6
SHARES

Authored by Jeffrey Snider via Alhambra Investment Partners,

There was an old joke among bond investors that use to say no AAA-rated bond had ever defaulted... because it was downgraded several times first. By the time the issuer was in restructuring, it was junk accredited long before then. It ceased being funny around February 2007.

There is something similar and similarly tragic that takes place in the wider macro context.

The perpetual optimism of each global reflation is at first always extrapolated to the most extreme. The reappearance of positive numbers in whichever set of economic accounts is converted into the definitive sign that the economy will go on forever in its best state.

This has happened, of course, several times so far across the last eleven years; including once in the middle of 2008 especially in the US where for brief time in the spring Economists and Fed officials actually thought the American economy might avoid recession altogether.

The economy has instead repeatedly fallen backward.
...
The “strong economy” is never quite downgraded, the qualifications to the qualifier are in its stead.

 

 

 

 

ABOOK-Jan-2018-Retail-Sales-Strong.png

Share this post


Link to post
Share on other sites

Have you guys read Ray Dalio's principles? He has a short 1 hour youtube video that pretty informative if not and goes over where we're at IMO. Were at the end of a cycle, but I wouldn't say times are bad. The market has been crushing it for nearly 10 years? A little correction doesn't hurt. And over time, the US economy prevails. And GDP has been good as well. Trade tensions with China, not so good, but in the end I think both sides will work it out.

Share this post


Link to post
Share on other sites

I do not believe we are going to have a hard recession, i just think it is going to slow down a bit. I think all the spending is going to catch up and people are going to slow down.

Share this post


Link to post
Share on other sites
On ‎10‎/‎13‎/‎2018 at 6:53 PM, TTSL said:

I do not believe we are going to have a hard recession, i just think it is going to slow down a bit. I think all the spending is going to catch up and people are going to slow down.

Im with you about the purchasing of houses.  My wife and I have been dabbling with the idea of moving and just seeing what people are spending compared to what they make is downright obscene in so many cases.    But I also know the banks aren't AS stupid about the loans as they were in the early 2000's when 60G salary a year would get you cleared for a  400G mortgage.      I personally feel a cooling is coming....its got to.   The good part is, im in Cincinnati Ohio, which means you guys will feel it a year or two before me.  hah

Share this post


Link to post
Share on other sites
3 hours ago, Kevin2772 said:

Im with you about the purchasing of houses.  My wife and I have been dabbling with the idea of moving and just seeing what people are spending compared to what they make is downright obscene in so many cases.    But I also know the banks aren't AS stupid about the loans as they were in the early 2000's when 60G salary a year would get you cleared for a  400G mortgage.      I personally feel a cooling is coming....its got to.   The good part is, im in Cincinnati Ohio, which means you guys will feel it a year or two before me.  hah

I dunno dude - On the last one in Michigan we felt it a year before anyone else. The midwest is honestly out of control when it comes to home values - if anything would make me feel like a correction is coming, it's seeing the home values skyrocket there. 

Share this post


Link to post
Share on other sites

I'm seeing house prices drop online - many adverts are now showing reductions (with many being second and third price reductions) but this could just be a sign that the peak selling period is now over and the market will quiet down as we head into the fall and winter.

I've been renting since i moved back to LA as we weren't sure where we wanted to be and have been patiently watching the market so welcome this drop and hope it goes further to open up buying opportunities.

 

Share this post


Link to post
Share on other sites
5 hours ago, Luxeous said:

I dunno dude - On the last one in Michigan we felt it a year before anyone else. The midwest is honestly out of control when it comes to home values - if anything would make me feel like a correction is coming, it's seeing the home values skyrocket there. 

Minnesota has gone insane, both in building and values. I understand the economy is going well, but just going from human nature and the nature of consumerism - these people are probably making a bit more, yes, but are the same credit risk as before, only with bigger amounts now.  I can't believe what you got for the money in MN now.. screw paying that to deal with the natural hazard of bitter fcuking cold.

 

If anyone has ideas where you can still get good value and be somewhat close to the gulf/ocean I'm all ears.

Share this post


Link to post
Share on other sites

Housing here in central oregon is insane.  property is insane.  cost of living is insane.  it feels like 2007 here in central oregon again.

Share this post


Link to post
Share on other sites

Like I said, the credit risk is much lower because underwriting standards have improved significantly and interest rates make stuff significantly more affordable.

$500,000 @ 4.5% for 30 years = $2500/month
$500,000 @ 7.5% for 30 years = $3500/month
$350,000 @ 7.5% for 30 years = $2500/month

So people today can get a $500,000 house at the same expense as a $350,000 house 10 years ago. What happened in 2007 was people were getting $500,000 houses that ended up at 7.5%, became unaffordable, and some even took equity out of that quickly became even more negative equity on top of the now lower priced asset.

The deals are long gone for RE and it needs to go sideways for quite a while in my opinion. 

The plus side is that we don't have a decade of home owners at high interest rates and high prices. We hav e a decade of home buyers who got amazing deals and low interest rates.  They've already built a reasonable amount of equity not only through appreciation but also 5-10 years of payments, and they had to pass stringent underwriting and had down payments.

Only those buying at the top now are "risky", and it only really becomes a problem if interest rates go up and prices keep going up for quite a few more years. One year of splurging and excess isn't going to tank the economy.

Share this post


Link to post
Share on other sites
6 hours ago, LA_Brit said:

I'm seeing house prices drop online - many adverts are now showing reductions (with many being second and third price reductions) but this could just be a sign that the peak selling period is now over and the market will quiet down as we head into the fall and winter.

I've been renting since i moved back to LA as we weren't sure where we wanted to be and have been patiently watching the market so welcome this drop and hope it goes further to open up buying opportunities.

 

I agree that there's an eminent market correction rapidly approaching. I don't think it'll hit as hard as 2008, but again it'll be another sharp and if you have cash on hand like at the end of 08-09 the world is yours at a hugely discounted price.

Share this post


Link to post
Share on other sites
5 minutes ago, Supercar Ace said:

I agree that there's an eminent market correction rapidly approaching. I don't think it'll hit as hard as 2008, but again it'll be another sharp and if you have cash on hand like at the end of 08-09 the world is yours at a hugely discounted price.

makes me wanna just liquidate most of the shares i've got, hold out, and enjoy the savings when it hits.

Share this post


Link to post
Share on other sites
30 minutes ago, Kerplop said:

makes me wanna just liquidate most of the shares i've got, hold out, and enjoy the savings when it hits.

Some of my friends here in LA have done just that - sold for top dollar and are renting til it corrects. The problem is whether you're actually losing more by renting than you are by a correction. Totally depends on timing and severity. 

 

2 hours ago, Rawr said:

Minnesota has gone insane, both in building and values. I understand the economy is going well, but just going from human nature and the nature of consumerism - these people are probably making a bit more, yes, but are the same credit risk as before, only with bigger amounts now.  I can't believe what you got for the money in MN now.. screw paying that to deal with the natural hazard of bitter fcuking cold.

 

If anyone has ideas where you can still get good value and be somewhat close to the gulf/ocean I'm all ears.

Dude it's honestly bananas. Houses that used to be $150k are now $3-400k, selling before even being listed. There are now million dollar houses in a neighborhood that has never seen a house over $300k before. On top of that, theres land for days... It just doesn't make sense.

Share this post


Link to post
Share on other sites

House prices up here in Vancouver have declined almost 40% since last year. The luxury home market (above $3m CDN) was red hot over a year ago has completing flatlined. There's a lot going on for prices to dip, the newly elected gov't implemented a foreign buyers tax, they introduced a luxury car tax of 26% and they're looking more closely into money laundering from China. Factor in rates going up and the average joe who borrowed equity from their homes to dabble in our hot RE market or purchase luxury items they technically couldn't afford and you have a receipt for disaster. It's going to be very interesting to see what happens in the coming months.

Share this post


Link to post
Share on other sites
10 hours ago, Luxeous said:

I dunno dude - On the last one in Michigan we felt it a year before anyone else. The midwest is honestly out of control when it comes to home values - if anything would make me feel like a correction is coming, it's seeing the home values skyrocket there. 

I might go ahead and wait for now and see if it pops up a hair more before I do that.  There are some that I'm still down on but am not /too/ terribly concerned because they're high dividend paying stocks and they'll eventually make it all back.

That said... I started in at 192 on my SPY and it hasn't done anything but go up up and up.  Once that correction hits, you know it'll hop back.  I'm really, really tempted.  It'd be real nice to buy another lambo.

 

Share this post


Link to post
Share on other sites
2 hours ago, Luxeous said:

Some of my friends here in LA have done just that - sold for top dollar and are renting til it corrects. The problem is whether you're actually losing more by renting than you are by a correction. Totally depends on timing and severity. 

That only works if you can DRASTICALLY downsize your standard of living, otherwise even a 20% price chop doesn't make sense.

Consider all the factors:
Cost of selling the existing house (commissions, moving, taxes if applicable)
Cost of renting: Non-deductible cash pissed away.
Annual tax implications: Not being able to deduct the interest and property taxes.

Obviously it all varies for each individual person, but it would have to be a HUGE percentage swing in the sub $1m price range to make the numbers work.  And that's assuming you can get into a decent rental that doesn't cost you $50k/yr.  The timing could fcuk you bigly, if this takes 2 years to sort out you'll lose your ass.  And that's assuming you can time the bottom reasonably well.

 

Share this post


Link to post
Share on other sites
36 minutes ago, emanon said:

 

I was more talking shares, but it's good to see real estate/rental advice on here since that's something i've never dove into.

Share this post


Link to post
Share on other sites
1 hour ago, emanon said:

 

Good point, but after seeing the boot my friend now calls his (half) of townhouse, i'd rather rent. I wonder if you knew options well you could protect with that if it does keep going for awhile.

Share this post


Link to post
Share on other sites

I find it interesting that no one is taking into account the federal debt and student loans.  I don't know how or when but it seems to me that in the not to distant future this is all going to bite us in the ass.  Up is not forever.

Share this post


Link to post
Share on other sites
5 hours ago, Kerplop said:

makes me wanna just liquidate most of the shares i've got, hold out, and enjoy the savings when it hits.

I've seen a lot of folks do that. As they used to say in the 80's, "Cash is King."

 

 

4 hours ago, Luxeous said:

Some of my friends here in LA have done just that - sold for top dollar and are renting til it corrects. The problem is whether you're actually losing more by renting than you are by a correction. Totally depends on timing and severity. 

 

Dude it's honestly bananas. Houses that used to be $150k are now $3-400k, selling before even being listed. There are now million dollar houses in a neighborhood that has never seen a house over $300k before. On top of that, theres land for days... It just doesn't make sense.

I agree with you there. Seller have gotten over their fear and are fully trying to exploit their greed. To come out ahead it takes some static timing, but the market are totally nuts right now. It's like everyone's trying to get rid of what they have but they think they can command an out outrageous price...that holding greed is going to come to serious head when the market corrects and enough buyer wait out the sellers. The slowdown in Chinese and Middle Eastern money pouring in has started the slide, as those money source created an artificial bubble effect because that money didn't care about anything except for getting out of it's home country.

Share this post


Link to post
Share on other sites
45 minutes ago, Supercar Ace said:

I've seen a lot of folks do that. As they used to say in the 80's, "Cash is King."

 

Yeah, it's tempting.  It feels like a huge crunch is coming and it feels similar to the last time.  I'm usually a bull but the market feels... weird to me.  Then again I don't have the expertise of romandad and many others, i'm still learning (aren't we always?)

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now