quote:

Originally posted by BBMW:
Why RE and the stock market are booming. All the cheap money has to find a home, and it's going into assets.

https://fred.stlouisfed.org/series/M1SL

At some point the inflation will become problematic and the fed will have to yank on the money chain. When interest rates go to double digits, the assets will strongly devalue.

Exactly right.
The classic definition of inflation is "too many dollars chasing too few goods." You can't just print an unlimited supply of new dollars without driving up prices.

I think we had this discussion as the Pandemic depression was firing up. The Fed would need to use money supply to keep the economy going during the pandemic, then defibrillate it once the pandemic blew out. It's largely gone (at least for now), GDP is back above where it was when the pandemic fired up. We're seeing signs of an overheated economy (inflation, labor shortages, etc.). It's time to turn down the money spigot.

quote:

Originally posted by chellim1:

quote:

Originally posted by BBMW:
Why RE and the stock market are booming. All the cheap money has to find a home, and it's going into assets.

https://fred.stlouisfed.org/series/M1SL

At some point the inflation will become problematic and the fed will have to yank on the money chain. When interest rates go to double digits, the assets will strongly devalue.

Exactly right.
The classic definition of inflation is "too many dollars chasing too few goods." You can't just print an unlimited supply of new dollars without driving up prices.

quote:

Originally posted by bigdeal:
[QUOTE]Originally posted by PASig:
It's already happening...

<snipped>

From Zero Hedge:

<snipped>
This will not be like the prior 2006 boom/bust, but I fear, will be worse due to other factors.

Consider....

- Inflation is rising at a rate faster than we've seen in the past decade or two.
- Contrary to the liars in Washington, the media, and the investors in the pockets of Washington, the economy is not strong or solid. There are fissures developing everywhere.
- Trillions of dollars of 'funny money' have been pumped into the economy for Covid relief continuing to push inflation. That sugar high will be short lived and that money will have to come back out somehow to re-settle the economy.
- The primary way to contract the money supply is to raise interest rates, which when/if implemented, would pull this economy to a halt and perhaps send it spiraling downward.
- If the economy halts or turns downward, many of the people who bought into the real estate market now at ridiculous values will default on their loans for one reason or another causing housing prices to plummet (talk about wealth transfer). The primary asset for middle class families is their home, so this will kill the middle class.

Long story short, pain is inevitable.

We're also in "the biz", sort of. I own half of a CRE Appraisal company. I do the business valuations and other functions, my wife is dual designated (MAI & AI-GRS) performing our RE appraisals. We have contracts around the country for mostly CRE appraisal reviews. We've reviewed over 200 million dollars in CRE appraisals in TX, ID, PA, AK, WV, and other states, just in the past 3 months (I just finished our quarterly books, so that number is fresh in my head). I agree with everything you've said above. We are seeing signs in nearly every market we look at.

quote:

The only questions are what will happen to trigger it, when it will happen, and how bad will it be. Given the cast of complete failures and morons infesting Washington today, I have zero confidence they will be able to successfully manage any of this when it occurs only making things worse.

Today's supreme court decision allowing Biden to fire the head of FHA and appoint his own real estate czar, is yet another example of actions the current administration is taking to completely destroy our economy. Similar to the Clintons, they will sink their fingers into the housing markets and wreck them for decades to come.

As to the "when"...that's going to vary by market, but signs in many markets of a crash are already there. The more we meddle with bad legislation and other artificial "fixes", the worse the crash will be. MUCH of the perceived high values are really just reflections of inflation. It isn't that difficult to distill down the numbers and see that we are in trouble now, and making bad decisions that will make it worse. Consider the current RE markets to be like a crypto-currency where all the super-smart insiders are pumping the market as they dump all their holdings. The crash is coming, in many ways it has already happened.

question for you guys in the business:

one reason I do NOT think a crash is hugely imminent (different from 2007-2008) is there is not an oversupply of homes relative to demand. yes prices have gone much higher on real estate, no question.

but back in the mid-2000s there was an absolute massive oversupply of homes. in the area we lived - spec homes were going up everywhere 24 / 7. you heard about huge new spec developments in places like Vegas, Miami, Phoenix etc.

Is that happening now? I seem to being seeing 'modest' increases in supply / construction -- nowhere near the mania of the mid-2000s. and as mentioned in this thread -- the lending standards are MUCH higher now pretty much across the board vs. the 'No Doc / Stated Income' loans of the mid-2000s.

Yes the money supply of the Fed is problematic as is massive fiscal spending. But I'm not so sure the housing crunch is imminent comparable to 2007-2008.

(the main concern I have is a repeat of the Jimmy Carter years -- rising inflation, high interest rates, higher taxes, GDP stagnation...)

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AKsuperdually, As I posted earlier. I could not agree with you more. Pretty much spot on you are. A convulsion is coming. The magnitude could be massive in terms of its ripple affect on the economy. We'll just have to see. But it is coming.

People have been waiting for a correction for quite some time now. It may come soon, or it could be years out--nobody knows. We're almost always just one calamity or poor policy decision away from the house of cards collapsing.

However, I can tell you that housing is in short supply. Even rental properties are in short supply--we're at the point where we're putting a house for rent out on the market with a single 2 hour window to view the property and still getting dozens of applicants. Buyers are getting exasperated and coming in hot simply so they have something to live in.

So, unless everyone suddenly decides at the same time to continue living with their roommates or builders miraculously drop a bunch of finished houses into the market, these prices will continue to be sky high until the aforementioned calamity or policy blunder.

quote:

Originally posted by Sig209:
the lending standards are MUCH higher now pretty much across the board vs. the 'No Doc / Stated Income' loans of the mid-2000s.

In the residential markets (mostly being discussed in this thread), the prevalent use of AVM's (automated valuation models), and under threshold lending, coupled with third-party inspectons/drive-by/desktop appraisals in mortgage lending is creating a recipe for disaster. Another very popular trend in my markets has been that an aged buyer or borrower with a significant retirement account is now borrowing their own money to finance transactions, often without performing an appraisal. We've seen our non-FDIC clients (hard money lendors and private investors) exceed our FDIC insured lending clients. We've seen a lot more private party, cash deals. We are getting increased requests for pre-foreclosure valuations, typically a "do not disturb the occupant" type. I would argue that there is just as much "hanky-panky" happening with lenders, perhaps even more in some markets. It's just done differently this time. The favorite realtor tactic of "not seeing" what would not be beneficial to see, is becoming common again. We can't get as-builts, title reports, or engineer's reports from lending clients anymore. They don't want to know, and they certainly don't want the appraiser to know. We've had a couple lenders remove us for calling out structural damage, property line encroachments, and other blatant hazards in our appraisals.

quote:

Originally posted by BBMW:
Why RE and the stock market are booming. All the cheap money has to find a home, and it's going into assets.

https://fred.stlouisfed.org/series/M1SL

At some point the inflation will become problematic and the fed will have to yank on the money chain. When interest rates go to double digits, the assets will strongly devalue.

Yeah. If you are borrowing to fund the purchase of asset you’re going to live in forever, or borrowing to fund the purchase of an asset that will comfortably rent for enough to pay all costs (including the fixed loan payment), maybe the fluctuation in asset price is less important to you, but otherwise it could get sporty…

So for someone currently in the hunt for a new home, how would I play this market to my best advantage? Let’s say that a correction is coming, how should that impact my thought process and what steps can I take to not get stuck with a 10% interest rate while also getting into a house at a (hopefully) reduced price compared to today?

SigM4, Is the market you are in experiencing crazy prices and a buying frenzy. If so I would wait it out.
If you sold a home in this market and made out with a bunch of cash. That is obviously a plus. Ie: being a mostly cash buyer. Outside of that there are no real advantages to buying now.
As I posted earlier, there are going to be opportunities in the future I feel like. You want to be one to take advantage. Not one that will be taken advantage of. There going to be a lot more in the later category.

A bust or major correction is coming. The S&L debacle happened because of one change in asset definitions for S&Ls. All it will take is the government doing something like that. Quite frankly, the Fed has signaled clearly over the years that it would raise basis points (interest rates for lenders) to reign in inflation rates much lower than we are experiencing now. Even if neither of those happen, the current market housing market is unsustainable. Prices in CA & NYC are insanely high, yet homeowners are leaving those places like rats off a sinking ship. So the people buying properties in those places are not using cash, but financing. Eventually those markets will crash, as supply goes up, demand goes down, and interest rates go up. That will ripple through the national RE markets.

Here in AZ prices are going through the roof, and builders are struggling due to prices of materials and lack of labor.

Just a general comment I always find remarkable. 'The Fed' was specifically created to normalize the cash supply and economy, and prevent boom and bust scenarios. That's its primary point for existing. Can we all admit that 'The Fed' is yet another government agency that has completely and spectacularly failed in its primary purpose for existing? Or is it executing another agenda?

Good point bigdeal.

I think the Fed has now become a compromised organization which follows and perpetuates political agendas.

quote:

Originally posted by SigM4:
So for someone currently in the hunt for a new home, how would I play this market to my best advantage? Let’s say that a correction is coming, how should that impact my thought process and what steps can I take to not get stuck with a 10% interest rate while also getting into a house at a (hopefully) reduced price compared to today?

how long would you likely be in the home?

if the horizon is long -- like 10+ years I would probably go ahead and buy if that's possible. if you were looking for a shorter duration you might want to hold on.

I'm about two years out from a likely move and hope there is some clarity by then... but of course all that is speculation.

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Real estate market must be a booming. People who can hardly speakee englishee are calling me wanting to buy our house.

Some of the states and the CDC are trying to get the rent moratorium extended another month. Not sure how successful they will be in making that happen. Just glad I'm not a landlord right now.
Either way, I don't understand what they think will happen when that ends. There seems to be no realistic plan or even a mention of a longer term plan to deal with this.
Lots of small landlords bought property and are making mortgage payments on those properties. The liberal mindset is that landlords are a bunch of rich corporations and like to see them get shafted any way they can.
This trickle-down could be the first crack in the wall.

When the rent and foreclosure moratorium ends there should be an influx of property into the market. Since foreclosures an evictions take months to happen, it may take some time to increase total supply, but it will increase.

Part of the boom is the exodus of people from restrictive states like NY and CA where they are getting high sales amounts on homes and moving where property is less expensive relative to their home market. As long as that continues its going to drive a shift in population and housing sales, so its not going to be a market issue like bad paper, lots of sales are for full price in cash, there is no mortage.

In the used car auction market the pandemic has stopped the supply of repossessed vehicles into the market, its had a significant impact on supply, which of course has helped drive up prices as well.

Once these moratoriums are up, it remains to be seen what influx of property will be.

quote:

Originally posted by Sportshooter:
Real estate market must be a booming. People who can hardly speakee englishee are calling me wanting to buy our house.

To quote the deceased Robin Williams: "I am job"

quote:

Originally posted by HRK:
In the used car auction market the pandemic has stopped the supply of repossessed vehicles into the market, its had a significant impact on supply, which of course has helped drive up prices as well.

To this point, I saw something amazing last week. A vehicle I was following on the Copart.com insurance auction site (vehicle had mild front end damage and a salvage title) sold for more than the used car valuation of the same car with an unbranded title. And then the buyer will need to pour more money into the vehicle to repair it. Until all of this sorts itself out, prices for virtually everything aren't going to have any correlation to reality.