Real estate decline 2020

redbeard

Hummingbird
Moderator
WallStreetPlayboys believes the RE market will grind to a bottom around September:


"Homes (3-5 months): It is still early. While more and more homes are entering into forbearance, the real estate game is a “long unwind”. It takes about 120 days before the home is taken away from someone (as usual there are ways to delay the inevitable, but, we like to keep things simple around here). If we take a look at the timeline, the first month of pain was really March and then April. So we know the deals won’t really show up in the first two months. People are busy trying to get their personal lives in order, calculating what they can and cannot keep… so on and so forth. Combine this with unemployment benefits (higher than usual) and a $1,200 stimulus check for many and you get some extra time.

As a rough estimate this would put us out into around August/September. Why? Well we can assume that the unemployment benefits + some savings (hopefully) and stimulus will lead to a delay in many foreclosures. The above is not meant to be an exact figure but more of an estimate. Highly unlikely that it is an exact 120 days from the beginning of the pandemic and it is also unlikely that unemployment benefits help a lot of people after 6 months or so (don’t forget, these benefits also go away eventually)."
 

Roosh

Cardinal
New leases for Manhattan apartments plunged by 71% in April, and vacancies soared as the rental market froze amid the coronavirus pandemic and more residents left the city, according to a new report.

The number of new leases fell to 1,407, the lowest total in a decade, according to a report from Douglas Elliman and Miller Samuel. The vacancy rate climbed to its highest level in 14 years, according to the report.
 

hervens

Sparrow
I have another theory.. that residential housing prices might actually increase, instead of decrease. And not because the house itself gained any value, but because the dollar is loosing value.
This is probably one of the biggest crises in history. Never before have we had essentially the entire world economy come to a sudden pause.
Despite all of this, how many people do you personally know won't be able to pay their rent this month ? How many of your friends/cousins/uncles lost their homes because of not being able to afford the mortgage like back in 08 ?

There can't be an economic collapse unless the government allows it to happen. If they keep bailing people out with various subsidies, premium unemployment, mortgage/rent deferral programs, etc. than its simply creating a surplus of liquidity in the market, further lowering the value of the currency and creating inflation.
 

NoMoreTO

Pelican
I managed to rent out the lower unit of my duplex to a young family - guy is a carpenter.

I put a lot of money (20K) materials and labour (used kitchen install, floors, paint, some electrical). I am renting it out for 10% more than previously. It's hard for me to judge but the student market in the university town seemed tighter than normal, perhaps timing and perhaps students wondering if they will even need a place. or want to sign a lease if they won't physically be at school in September.

Still, I wanted to switch out of Student rental to get a family so overall I was happy with the reno and the new tenants who I'm hopeful will be long term and take care of the place.
 

Koolking

Sparrow
I forecast property values in blue states to fall, helping red southern states to increase property values. The already too high property taxes in blue states and the generally harsher Winters were taking their toll but the virus (and lock downs) will be the straw that finally broke the camel's back. Alas, I also see property taxes in southern states rising due to increasing deficits for municipal/county governments as a result of the virus.
 

Laner

Hummingbird
Gold Member
Is there any benefit to using equity of my home to purchase some rural land?

Other than the obvious of having some place outside the madness to use for perhaps a month a year.
 

kel

Kingfisher
You could rent most of the land to someone for grazing and turn it into somewhat of a passive income source.
 

NoMoreTO

Pelican
Is there any benefit to using equity of my home to purchase some rural land?

Other than the obvious of having some place outside the madness to use for perhaps a month a year.
If its a farm property you can start writing off all kinds of stuff. Interest for one.

Also in Canada there is the Capital Gains Exemption for Farms of 1M, so your capital gains would likely be covered on sale. You can also pass to a child at cost or anywhere between cost and FMV to minimize taxes.

I think the same would apply to if you bought some bush.
 

Arado

Pelican
Gold Member
I have another theory.. that residential housing prices might actually increase, instead of decrease. And not because the house itself gained any value, but because the dollar is loosing value.
This is probably one of the biggest crises in history. Never before have we had essentially the entire world economy come to a sudden pause.
Despite all of this, how many people do you personally know won't be able to pay their rent this month ? How many of your friends/cousins/uncles lost their homes because of not being able to afford the mortgage like back in 08 ?

There can't be an economic collapse unless the government allows it to happen. If they keep bailing people out with various subsidies, premium unemployment, mortgage/rent deferral programs, etc. than its simply creating a surplus of liquidity in the market, further lowering the value of the currency and creating inflation.
This is the inflation/deflation debate I wrote about here and is THE fundamental macroeconomic question right now. Right now lots of people are in forbearance and getting unemployment checks and stimulus, and there is a halt on evictions. Things may not be as rosy after the election once there's no more motivation to give away free money. There are a lot of cross currents here so don't assume things will be that simple.

 
I should post this in the other thread but it is clear at this time, deflation has been going on, is going on, and will continue to go on...
 

PixelFree

Woodpecker
I have another theory.. that residential housing prices might actually increase, instead of decrease. And not because the house itself gained any value, but because the dollar is losing value.
Yes, this is what I think will happen, certainly for Australia.

6-12-18 months of house price decline - partly due to genuine job loss and particularly in Melbourne and Sydney (most depending on immigration), but mostly due to low consumer confidence/perception (notice how we are being talking into a recession).

Then boom after that within 3 years. There has been so much stimulus money created and injected into the market that all these new dollars (which have stolen their value from all the existing dollars in circulation) will swish around the economy then eventually find a home somewhere - pooling in assets such as real estate.

I get this from the Mike Maloney videos and my local Australia advisors who have analysed previous 'post event' scenarios. Houses always kept climbing, if anything more so away from shares and into property as property is viewed as a safer asset.

I think there is one more cycle left in our current monetary system before it all explodes, collapses and resets.

So, if I'm right, there will be a good buying window coming up soon before that might be it for good (in Australia at least).

What I mean when I say 'for good' is that a local person earning (even 2-3x the average wage) would have no chance of affording a median priced house unless they had family money. This happened as Australian property has been placed on the global market (and China is producing 25M millionaires each year - which is our entire population).
 
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Troller

Woodpecker


“Delinquencies among borrowers for past-due mortgages are soaring, a sign that Americans are struggling to pay their bills due to a wave of layoffs or lost income from the coronavirus pandemic.

Mortgage delinquencies surged by 1.6 million in April, the largest single-month jump in history, according to a report from Black Knight, a mortgage technology and data provider. The data includes both homeowners past due on mortgage payments who aren’t in forbearance, along with those in forbearance plans and who didn’t make a mortgage payment in April.”

Today spoke with some people related to real estate. Things are not looking good. Banks are desperate. No new clients. No new loans.
 

gework

Pelican
Gold Member
I think there is one more cycle left in our current monetary system before it all explodes, collapses and resets.

So, if I'm right, there will be a good buying window coming up soon before that might be it for good (in Australia at least).
That's been my take for some time too. I was projecting a financial event cira 2030 that would take the current financial system and social democracy. I thought this was about a 70% chance. There is always a probability that it could be stretched out longer. We don't have enough info on where things will go. With the response to corona I think the 2030 window for collapse is now 90%+.

But with the corona response it could always happen now. My guess is the US stock market will not again reach the highs of 2020. Going forward I am going to be very careful in buying back into stocks. We could be heading into what Japan headed into in 1990.



Averaging out metrics I'd say Europe and The US are in the same position as Japan in 1990. They have rolled over their system to keep it going. It's been propped up by pushing the real bills about 30 years into the future and now the cost of past stagnation is coming due.

The US and Europe are well behind that schedule. But this response is going to push them at least 5, maybe 10 years towards the collapse.

The big trigger is Japan, which will be paying about 50% of its government budget in debt repayments in 2030. If they can't keep rolling over it will make the GFC seem like little league.

Since about 2000 there has been huge injections of debt into most economies. That boosted growth, which we are now paying for. And we're heading to Japan levels, where growth is dwarfed by the amount of debt government takes on.

A take on the Aussia housing market

 

Speculation

Kingfisher
For the Australians, I heard from a property developer that the Housing Industry Association is now lobbying for a $50k federal first home owners grant to prop up the zombie property bubble. Word is they don't expect the 50k to be accepted, but its a highball anchor offer to start the negotiation.

In Australia, first home owners (Citizens and Permanent Residents) currently get around A$10000 grant (varies by state) and exemption from stamp duty on their first home purchase (they need to live in it for a year and there are other conditions. This was put in place to help locals get into the housing market in comepetition with the chinese investors and high end immigrants and boomers using the housing market for speculation. Of course all it did was inflate the bubble further. Prices rose by the grant amount over 6 months and stayed up there, but it went into the construction industry/developers' pockets.
 

Speculation

Kingfisher
Right on cue:
Calls for $40,000 new-home buyers grant to avoid industry ‘bloodbath’
A $40,000 new-home buyers grant needs to be introduced within a month to avoid a potential “bloodbath” in the building industry, and save up to 100,000 jobs across the state.

The Master Builders Association said the sector was facing an unprecedented crisis, with traffic through show homes down 90 per cent across the country since the start of COVID-19, and conversion rates from those visits at just 50 per cent.

Grant Galvin, the chief executive of Master Builders Queensland, said a new-home buyers grant was the only thing that could rescue the sector short-term.

“There is minimal construction work set to carry on beyond August, so if the government does not act now, this sector it is going to fall off a very come September when hundreds of thousands of people find there’s no more jobs,” Mr Galvin said.
This is likely to be ignored, but its pretty predictable how the housing industry runs around trying to fleece the taxpayer when things take a downturn.
 

PixelFree

Woodpecker
I think there is a good chance some kind of generous additional first home buyers bonus or stamp duty (property purchase tax) exemption will happen. FHB's in Australia already get $10k from the Federal government and each state has additional bonuses (save $30k in stamp duty in Victoria for example).

They'll probably do this for houses under $600k AUD ($400k USD), which will probably have the same effect it did when it was first introduced and cause these 'cheap' properties to continue to rise. They are just pouring fuel on the demand side of things with the same supply, and every $10k you give to a FHB allows them to borrow an additional $50k-100k.

I would say this next cycle (10 years or less) we'll have some deflation (wages, basic consumer goods, food) and some inflation (anything the bank lend money on - real estate, student loans, car loans + other assets like gold, silver and shares). Again, the same thing we had back in 2008 but to an even greater extent. The $5,000 big screen TV of 2008 can be had for $299 in 2020, but $5,000 of land is $20k.
 

Arado

Pelican
Gold Member
Some good videos I've seen recently on the real estate situation:




Check out these videos. There are A LOT of countertrends and don’t generalize about the market.

-Are you talking about farmland in Wisconsin or a high rise luxury condo in midtown NYC/SF?

-How much is the Fed going to print? How will the printing affect different areas?

-What about eh telework/WFH revolution? Urban core will likely suffer, while suburbs may do ok

-How will racial tensions impact home purchasing decisions in certain districts?

-Are you talking about prices in nominal terms or real terms?

-How will increased efforts to re shore manufacturing lead to a surge in previously dilapidated factory towns, while “globalist” cities like NYC will see less of a role as the world’s financial capital?

-How long will mortgage forbearance last? We can expect a dramatic surge in housing supply once folks can no longer pay their mortgage but for now there’s little motivation to sell out of desperation. Will people be able to pay their deferred payments in a lump sum or will it be tacked onto the end of their loan?

-How long will unemployment last? That makes it difficult for people to pay mortgages and qualify to purchase new homes.

- What is going on with Airbnb? According to some forums, bookings in rural scenic locations accessible by car are doing ok while areas that are relatively crowded and require a plane ride will suffer greatly.

-How long will interest rates (30 yr fixed rate mortgages) stay low?

-Will retiring boomers sell to gain some cash as pensions go bust or hold out for higher prices in the future?

-With student loan forgiveness, maybe millennials will be able to afford houses?

Conclusion? What I can say – urban luxury high density housing in low trust diverse neighborhoods will likely get cheaper in REAL terms while rural housing in high trust socially distant compatible areas with low cost of living will probably not decrease that much in NOMINAL terms as long as there is printing. I’m using different metrics between the two since if there’s massive inflation everything can go up in nominal terms theoretically, but urban core real estate likely to lag many other assets.
 
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