Rawr

Recession coming?

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5 hours ago, Kerplop said:

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?)

You're spot on the market is certainly in a very weird place right now. The real question is how big will the dip be and how long will it last? For that I'd let the experts like Roman chime in,

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It's unrealistic for anyone in a "normal" price range to sell their home at the top to avoid a downturn. Unlike stocks, you still need a place to live so you'd either have to buy something cheap (not nice) or rent something really cheap (also not nice). If you're in the high-end market of $5M homes or something, sure, you could probably come out a head and still live someplace nice since it's not like $1M homes are so unbearable.

Also keep in mind that if you sell at the top, you may have a capital gain. This can often be put into a special account used to buy another home, but there will surely be time limits on this and the downturn might not happen soon enough.

After it's all said and done, you'll have to pay commissions, fees, taxes, rent, capital gains, lose tax savings, have to deal with the hassle of moving, and potentially live someplace not very nice for an undetermined amount of time that may or may not ever come. You could be wrong and the market is fine.
 

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Also, you can't "short" your house or buy puts on it, per se, but you can do that with RE-oriented stocks (home builders maybe?) or maybe even REITs. This would be just as risky probably, but less of a hassle and you could undo your decision at a moments notice if you change your mind. You can't undo a house sale.

The best way to sell at the top and avoid a downturn is to do it via securities. You don't need to protect your own house value if you can short someone else's...

Just my two cents.

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I read an interesting article just yesterday in an apartment owners trade magazine I receive that made a strong argument that housing prices (in CA at least) pull back pretty hard when affordability gets down to the 17% level.  This level was hit in 1981, 1989, and 2007 dropped down to around 12%.  Following all those years where affordability hit or dipped below 17%, there was a multi-year price pullback. 

The supporting data was that once the market hits affordability that low, sales stall out and inventory starts to build.  This begins to trigger price reductions, which if it becomes significant, new construction slows down/stops and foreclosures begin to increase.  Depending on the scale, unemployment due to stopped construction can compound the issue and the market is starting to snowball.

I'll try to screen shot the charts and post them here if I can find it published online, but everything mentioned above was pretty strongly correlated by year.  Correlation does not equal causation, but it all seemed to go hand in hand.

Despite the average home price in CA exceeding $600k for the first time ever (above 2007 levels), affordability is still at 26%, so by this metric the sky isn't falling... yet.  Pending some major event I don't see a recession coming in 2019, and I sure don't see the affordability numbers dropping another 9% in a year (it moved 8% from 2004-2005 when things exploded).  I feel like 2019 will be good, pending any outside economic influence that kicks us in the nuts. 

I don't know if this link will work.  If it does, the article starts on page 64. 
https://www.aoausa.com/mag/october_2018/Orange_County_2018/#65/z

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I am on the wagon that a correction is coming. But as a devils advocate, a lot of shit has increased in value because of inflation. Wages have gone up quite a lot, but consumer goods are more $$.. We had such a depressed economy for so long, that there are a lot of people that are finally getting on top again and a lot of fresh population that is getting into the market as well. The problem is this growth is 100% un sustainable. We need to get growth back down around 2%. Anytime a president is bragging about 6% growth etc. it scares the shit out of me.

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1 minute ago, megachad said:

I am on the wagon that a correction is coming. But as a devils advocate, a lot of shit has increased in value because of inflation. Wages have gone up quite a lot, but consumer goods are more $$.. We had such a depressed economy for so long, that there are a lot of people that are finally getting on top again and a lot of fresh population that is getting into the market as well. The problem is this growth is 100% un sustainable. We need to get growth back down around 2%. Anytime a president is bragging about 6% growth etc. it scares the shit out of me.

Depending on the nature of the growth, yeah i'm 100% with you.  If we can bolster exports and keep imports in-line, it's fantastic growth that isn't directly funded by our own economy.  I think 3-4% is sustainable without inflation going insane, but if it gets above that we'll just see monetary policy get more restrictive and try to pull it back.  Yeah higher interest rates suck, but getting more than a 2% return on cash is nice as well.  Job skills and available employees might just calm down the economy a bit since there are some serious gaps that are proving to be difficult to fill and that's slowing business growth.  Might also spur some whole new automation markets in the next few years.

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19 minutes ago, megachad said:

I am on the wagon that a correction is coming. But as a devils advocate, a lot of shit has increased in value because of inflation. Wages have gone up quite a lot, but consumer goods are more $$.. We had such a depressed economy for so long, that there are a lot of people that are finally getting on top again and a lot of fresh population that is getting into the market as well. The problem is this growth is 100% un sustainable. We need to get growth back down around 2%. Anytime a president is bragging about 6% growth etc. it scares the shit out of me.

You're not the only one.  I watched my neighborhood which had no houses built for about 6 blocks, just empty lots, since I bought my house after 2008.  Then this year, suddenly 30 new houses in my neighborhood.  Like watching weeds grow.  My neighbors nextdoor rent the house, and are paying more than double what I pay for my house.  The new houses are even more.  The median household income here has not hardly budged, and makes very little sense.  Construction jobs soaring through the roof, but once we hit that plateau, then what?  Poof.

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Does anyone have the numbers on what happened to median income during the last 10/5 years? Megachad mentioned wages have gone up, and while I see literally every place is $12/hr now up to $15, I find it hard to believe that people that made 40-50k 10 years ago now make 60-70k.

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There are a ton of tech jobs involved in computer sciences now that pay very well for a 9-5 job. I have a friend that is now 28.. 3 years ago he was making about $50k. Now he is at $80k plus bonus. Same job same company. The younger generation also seem to be less afraid to leave their current positions to get better pay. Kind of like free agency in sports. If employers won't pay, someone else will. 

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3 minutes ago, megachad said:

There are a ton of tech jobs involved in computer sciences now that pay very well for a 9-5 job. I have a friend that is now 28.. 3 years ago he was making about $50k. Now he is at $80k plus bonus. Same job same company. The younger generation also seem to be less afraid to leave their current positions to get better pay. Kind of like free agency in sports. If employers won't pay, someone else will. 

He must do a good job, because I’ve never had a company give more money just because they have flush pockets. 

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Im in real estate here in Dallas and it is definitely cooling off a lot and fairly quick.  Just earlier this year Dallas was the hottest market in the country and now we have an influx of properties (14 % more homes on the market compared to this time last year) and home sales have declined 7%.

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26 minutes ago, CallMeJarob said:

Im in real estate here in Dallas and it is definitely cooling off a lot and fairly quick.  Just earlier this year Dallas was the hottest market in the country and now we have an influx of properties (14 % more homes on the market compared to this time last year) and home sales have declined 7%.

So a good time to have cash and be a buyer?

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15 hours ago, Destructo said:

So a good time to have cash and be a buyer?

I think so yes, my wife and I are looking at a few rental properties we know we could get for a good price.

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On 10/16/2018 at 7:56 AM, emanon said:

I read an interesting article just yesterday in an apartment owners trade magazine I receive that made a strong argument that housing prices (in CA at least) pull back pretty hard when affordability gets down to the 17% level.  This level was hit in 1981, 1989, and 2007 dropped down to around 12%.  Following all those years where affordability hit or dipped below 17%, there was a multi-year price pullback. 

The supporting data was that once the market hits affordability that low, sales stall out and inventory starts to build.  This begins to trigger price reductions, which if it becomes significant, new construction slows down/stops and foreclosures begin to increase.  Depending on the scale, unemployment due to stopped construction can compound the issue and the market is starting to snowball.

I'll try to screen shot the charts and post them here if I can find it published online, but everything mentioned above was pretty strongly correlated by year.  Correlation does not equal causation, but it all seemed to go hand in hand.

Despite the average home price in CA exceeding $600k for the first time ever (above 2007 levels), affordability is still at 26%, so by this metric the sky isn't falling... yet.  Pending some major event I don't see a recession coming in 2019, and I sure don't see the affordability numbers dropping another 9% in a year (it moved 8% from 2004-2005 when things exploded).  I feel like 2019 will be good, pending any outside economic influence that kicks us in the nuts. 

I don't know if this link will work.  If it does, the article starts on page 64. 
https://www.aoausa.com/mag/october_2018/Orange_County_2018/#65/z

That's some really interesting stuff...

It's also interesting to with the massive construction in luxury apartments...seems like everyday in LA they are breaking ground on a new complex or existing ones are undergoing some major renovations. I'd be curious to see the impact on those during a market correction as well.

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In those days blind Greenspan was saying there is no inflation. Banks Ok to lend to any one. Now rates are rising like they should

 

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