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OT: Why the real estate market is not in a bubble: Q1 2023 update video added to OP

In New York City here. Nothing is selling. high end (10million dollar apts) back to 2014 levels and many properties sitting with no bids. Even in the nice neighborhoods like tribeca.

high end though fueled by finance jobs which are having a very bad year.
rents though still surging and strong demand. However when compared to yoelds you can get in investment grade bonds now, owning a NYC apt and renting it out is a losing proposition versus taking cash and putting it into investment grade bonds.
 
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superfan01 said:
In New York City here. Nothing is selling. high end (10million dollar apts) back to 2014 levels and many properties sitting with no bids. Even in the nice neighborhoods like tribeca.

high end though fueled by finance jobs which are having a very bad year.
rents though still surging and strong demand. However when compared to yoelds you can get in investment grade bonds now, owning a NYC apt and renting it out is a losing proposition versus taking cash and putting it into investment grade bonds.
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Owning a nyc apartment and renting it out is a fools game. The city hates landlords and rent control laws make it impossible. Park that money in dallas imo
 
kyk1827 said:
I now see. Your call is prices retrace to 2020 as measured by case-shiller. Not happening.
fred.stlouisfed.org

S&P CoreLogic Case-Shiller U.S. National Home Price Index

View data of a benchmark of average single-family home prices in the U.S., calculated monthly based on changes in home prices over the prior three months.
fred.stlouisfed.org
Reality is no one will pay me/pay RU when youre wrong but thats okay
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Well when WW3 breaks out I think this whole thing is going to look alot different. Just giving you a shot to call it early.
 
We still sit at just over 3 months supply however, even if new listing volume doesnt grow (down 20% nationwide yoy), inventory only grows modestly (happening right now), the months supply can grow if sales pace continues to slow (happening). These type of rates are doing that, hence why i believe yoy from sept-22 to sept-23 we’ll see modest price declines somewhere between 0-3%. Some markets more, some markets less/wont drop
 
theRU said:
Well when WW3 breaks out I think this whole thing is going to look alot different. Just giving you a shot to call it early.
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Haha I mean if ww3 legit breaks out all bets are off. However, it should be me extending the olive branch to you to call it off. A retracement to march 2020 is an absurd call lol
 
I have a heloc I took out 2 months ago. Need the whole thing for a renovation I’m flint. Only drew down half so far. You think the bank will freeze it / decrease the amount available given the softening market? Or am I over analyzing / thinking this?
 
theRU said:
The markets are getting hammered - doom and gloom in the headlines. Yikes it's going to get ugly
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Real estate will see modest declines in yoy prices due to where rates are. If rates even touch back to 5.5% or below, no declines imo
 
kyk1827 said:
Real estate will see modest declines in yoy prices due to where rates are. If rates even touch back to 5.5% or below, no declines imo
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Sticking to your guns - I get it already trust me.

I'm just saying all the pain I've been warning you about is coming. Financial world in crisis, energy costs at all time highs, a massive war brewing, alot of negative momentum building, but yes "nothing to see here - move along now" I suppose 🙄
 
theRU said:
Sticking to your guns - I get it already trust me.

I'm just saying all the pain I've been warning you about is coming. Financial world in crisis, energy costs at all time highs, a massive war brewing, alot of negative momentum building, but yes "nothing to see here - move along now" I suppose 🙄
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I dont think you realize how fundamentally strong homeowners are. Youre not alone though.

two things to keep in mind

- spreads are blown out on residential home mortgages because the market is pricing in a fed pivot and lenders want to be compensate for pre-pay risk. Loans that dont have prepay risk (loans on apartment complexes through agency debt with prepay penalties) are getting quoted in mid to upper 5’s right now.

- when rates shot down to 5.5% in july, new home sales volume increased by 18.3%, <.1% of the total august-21 sales volume during the frenzy. Literally only thing that can slow this market is interest rates remaining elevated
 
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kyk1827 said:
I dont think you realize how fundamentally strong homeowners are. Youre not alone though.

two things to keep in mind

- spreads are blown out on residential home mortgages because the market is pricing in a fed pivot and lenders want to be compensate for pre-pay risk. Loans that dont have prepay risk (loans on apartment complexes through agency debt with prepay penalties) are getting quoted in mid to upper 5’s right now.

- when rates shot down to 5.5% in july, new home sales volume increased by 18.3%, <.1% of the total august-21 sales volume during the frenzy. Literally only thing that can slow this market is interest rates remaining elevated
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Mortgage rates will not cause or prevent the housing market correction. It’s all about jobs.
 
jtung230 said:
Mortgage rates will not cause or prevent the housing market correction. It’s all about jobs.
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People are blowing through whatever excess savings they had coming out of the pandemic too. The consumer will learn a valuable lesson that overpaying on housing, autos, etc. does long term damage to finances.
 
The other item to watch out for is layoffs. Companies are talking about laying off remote employees first. There will still be plenty of remote jobs going forward but that may cause some selling in markets with not a lot of jobs.
 
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kyk1827 said:
I dont think you realize how fundamentally strong homeowners are. Youre not alone though.

two things to keep in mind

- spreads are blown out on residential home mortgages because the market is pricing in a fed pivot and lenders want to be compensate for pre-pay risk. Loans that dont have prepay risk (loans on apartment complexes through agency debt with prepay penalties) are getting quoted in mid to upper 5’s right now.

- when rates shot down to 5.5% in july, new home sales volume increased by 18.3%, <.1% of the total august-21 sales volume during the frenzy. Literally only thing that can slow this market is interest rates remaining elevated
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I hear you and have had somewhat of a similar view to you until the most recent fed moves and spread widening. Yes, you can finance a multi through an agency at 5 year IO for 5 or 10 years but cap rates are 4 meaning leveraged yield is 3. Unless rates come back down that math doesn’t work. If your counting on rates coming back down you’re speculating.
 
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pmvon said:
I hear you and have had somewhat of a similar view to you until the most recent fed moves and spread widening. Yes, you can finance a multi through an agency at 5 year IO for 5 or 10 years but cap rates are 4 meaning leveraged yield is 3. Unless rates come back down that math doesn’t work. If your counting on rates coming back down you’re speculating.
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Exactly and i'm not attacking @kyk1827 but I have no idea what syndicators for apartment buildings are doing right now except praying to God rental rates continue to surge. If employment goes up and that demand softens and rates are high and your loan expires it's going to be painful. That's a lot of if's though.

Basically I don't get how someone buys a 4-5 cap and borrows at 6-7 just hoping rental price increases can continue to be insane. I have a few clients like that I manage apartment buildings for in NJ.
 
RUskoolie said:
Exactly and i'm not attacking @kyk1827 but I have no idea what syndicators for apartment buildings are doing right now except praying to God rental rates continue to surge. If employment goes up and that demand softens and rates are high and your loan expires it's going to be painful. That's a lot of if's though.

Basically I don't get how someone buys a 4-5 cap and borrows at 6-7 just hoping rental price increases can continue to be insane. I have a few clients like that I manage apartment buildings for in NJ.
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To be sure fundamentals are very good but now slowing which is what the fed wants. Month over month gains in apartment rents was zero. YOY 10%, that will continue to decline while rates are at these levels and rising.
 
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pmvon said:
To be sure fundamentals are very good but now slowing which is what the fed wants. Month over month gains in apartment rents was zero. YOY 10%, that will continue to decline while rates are at these levels and rising.
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Rent growth and absorption is in fact slowing, has to right? But keep in mind when you say slowing, its slowing off all time highs. Rent growth should be back to around 5% yoy by around this time next year.

@RUskoolie ill post my newsletter here later today. Gonna be a blood bath in q1/q2 with deals (apartment complexes) on bridge debt being forced to sell. The reason we are buying and continue to buy is that theres never a bad time to buy as long as you get a good deal. For example, we are currently one of a handful of apartment owners in Sugar Land (Houston) one of the best suburban towns in the US. Market cap rates in Sugar Land were 3.7%, we bought at an in place 4.5% which is really solid for that market. Those deals always have low cap rates, Class-A institutional quality assets and by a function of that are liquid as fvck. Our two direct neighboring properties are owned by blackstone and jp. Furthermore, pension $$$ loves these deals. Our loan? NYCERS.
 
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kyk1827 said:
Rent growth and absorption is in fact slowing, has to right? But keep in mind when you say slowing, its slowing off all time highs. Rent growth should be back to around 5% yoy by around this time next year.

@RUskoolie ill post my newsletter here later today. Gonna be a blood bath in q1/q2 with deals (apartment complexes) on bridge debt being forced to sell. The reason we are buying and continue to buy is that theres never a bad time to buy as long as you get a good deal. For example, we are currently one of a handful of apartment owners in Sugar Land (Houston) one of the best suburban towns in the US. Market cap rates in Sugar Land were 3.7%, we bought at an in place 4.5% which is really solid for that market. Those deals always have low cap rates, Class-A institutional quality assets and by a function of that are liquid as fvck. Our two direct neighboring properties are owned by blackstone and jp. Furthermore, pension $$$ loves these deals. Our loan? NYCERS.
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Whats your financing rates, terms and rent growth assumption? I am curious because at 4.5, there’s negative leverage.
 
pmvon said:
I hear you and have had somewhat of a similar view to you until the most recent fed moves and spread widening. Yes, you can finance a multi through an agency at 5 year IO for 5 or 10 years but cap rates are 4 meaning leveraged yield is 3. Unless rates come back down that math doesn’t work. If your counting on rates coming back down you’re speculating.
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150 year rate of appreciation of real estate is 6.64%. Lets say we get back to 5% average appreciation yoy for the next decade, even at just 50% leverage that’s a 10% annualized return from appreciation alone due to leverage. Account for cashflow and tax benefits and youre closer to at minimum 15% average annualized return over the decade
 
pmvon said:
Whats your financing rates, terms and rent growth assumption? I am curious because at 4.5, there’s negative leverage.
Click to expand...
- 330 over sofr. However, we negotiated with seller to effectively buy a rate cap for us making the debt net effectively 5% at roughly 72% LTC.

- rent growth below costar forecasts. Year 1 about 5.3% and moving down from there to where by year 5 it’s 3.5%. This is after we stabilize the asset through our post closing renovations where we are quite literally just copying what our neighbors have done who are already receiving the initial bumps we will get. (No permitted new construction comps in 5 mile radius so minimal supply side risk). Neighbors property was built by the same builder 2 years apart and units are nearly identical size/layout wise.

- we also assume in our underwriting market gets worse and we’ll sell this for a higher cap rate than we purchased it at. Its possible the market is better in 5 years when we sell but we always assume it’ll be worse. For example, we thought phoenix was gonna boom, we bought an asset there in 2019 for $11.635, we are under contract to sell it now for $25mm and change. A $100,000 investor will get back aroune $330K. We told them after 5 years we’d double their money. We are more than tripling it in 3. Had we sold 6 months prior wouldve gotten 30mm but not gonna complain here, good result
 
kyk1827 said:
Rent growth and absorption is in fact slowing, has to right? But keep in mind when you say slowing, its slowing off all time highs. Rent growth should be back to around 5% yoy by around this time next year.

@RUskoolie ill post my newsletter here later today. Gonna be a blood bath in q1/q2 with deals (apartment complexes) on bridge debt being forced to sell. The reason we are buying and continue to buy is that theres never a bad time to buy as long as you get a good deal. For example, we are currently one of a handful of apartment owners in Sugar Land (Houston) one of the best suburban towns in the US. Market cap rates in Sugar Land were 3.7%, we bought at an in place 4.5% which is really solid for that market. Those deals always have low cap rates, Class-A institutional quality assets and by a function of that are liquid as fvck. Our two direct neighboring properties are owned by blackstone and jp. Furthermore, pension $$$ loves these deals. Our loan? NYCERS.
Click to expand...
That's true if you're buying Class A. I am managing property in New Brunswick that's D class tenants and the clients are buying 5 caps lol.
 
kyk1827 said:
150 year rate of appreciation of real estate is 6.64%. Lets say we get back to 5% average appreciation yoy for the next decade, even at just 50% leverage that’s a 10% annualized return from appreciation alone due to leverage. Account for cashflow and tax benefits and youre closer to at minimum 15% average annualized return over the decade
Click to expand...

There’s an old saying. The market can stay irrational longer than you can stay solvent. I think you’re overestimating long term appreciation. Why would it be 5%? Should we extrapolate these numbers after 30 years of declining rates? Over a 5 year period markets, can go down 20% and at 50% leverage you’re down 40% which means you have no equity. If you have a bridge that’s real trouble. If you have 10 year agency debt you might be ok.
 
kyk1827 said:
- 330 over sofr. However, we negotiated with seller to effectively buy a rate cap for us making the debt net effectively 5% at roughly 72% LTC.

- rent growth below costar forecasts. Year 1 about 5.3% and moving down from there to where by year 5 it’s 3.5%. This is after we stabilize the asset through our post closing renovations where we are quite literally just copying what our neighbors have done who are already receiving the initial bumps we will get. (No permitted new construction comps in 5 mile radius so minimal supply side risk). Neighbors property was built by the same builder 2 years apart and units are nearly identical size/layout wise.

- we also assume in our underwriting market gets worse and we’ll sell this for a higher cap rate than we purchased it at. Its possible the market is better in 5 years when we sell but we always assume it’ll be worse. For example, we thought phoenix was gonna boom, we bought an asset there in 2019 for $11.635, we are under contract to sell it now for $25mm and change. A $100,000 investor will get back aroune $330K. We told them after 5 years we’d double their money. We are more than tripling it in 3. Had we sold 6 months prior wouldve gotten 30mm but not gonna complain here, good result
Click to expand...

What happened from 2019 to today means nothing for what’s happens from today to 2025.

I hear you but it will all hinge on how far rates go and how long they stay there. If the ten year is at 6 in 5 years, cap rates on apartments may be at 7-+ with very low rent growth. That’s a very plausible scenario and one that isn’t good for selling a stabilized 5.5 with 70% leverage. Just saying there’s a lot of uncertainty.
 
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tom1944 said:
Same thing happens with mortgage brokers
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A lot of them are scummy. I had one dude bragging that he got someone with a 540 credit score a mortgage. I was thinking to myself, maybe that person shouldn't be buying a house? But they DGAS. They just want their check. I do things the right way so I probably don't make as much commission as I could but a lot of these people are grease balls. Truly disgusting.
 
RUTGERS95 said:
Just the tip of the iceberg
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I also have to believe buyers remorse will haunt many that overspent on houses, especially if energy prices spike this winter. Hard to wrap my head around the prices people were paying for homes and autos. But then again, all Americans do is spend money and the gov’t threw gasoline on the spending fire with handouts and payments to people that didn’t need it. Perhaps the biggest warning sign to me was when the luxury watch market took off and there were buying frenzies around Rolex’s. I mean, come on, who the F even needs a traditional watch anymore with phones in our pockets and smartwatches.
 
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RUAldo said:
I also have to believe buyers remorse will haunt many that overspent on houses, especially if energy prices spike this winter. Hard to wrap my head around the prices people were paying for homes and autos. But then again, all Americans do is spend money and the gov’t threw gasoline on the spending fire with handouts and payments to people that didn’t need it. Perhaps the biggest warning sign to me was when the luxury watch market took off and there were buying frenzies around Rolex’s. I mean, come on, who the F even needs a traditional watch anymore with phones in our pockets and smartwatches.
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Rolling into a meeting with a rolex vs an apple watch is an exponentially better look
 
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tom1944 said:
I guess my Fitbit would be even less impressive

I aim to be the guy who looks poor but can buy anything he wants cash to the surprise of the sales person.
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And I happen to think many Fitbits look better than those gaudy Rolexs. But to each his own I suppose.
 
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tom1944 said:
I guess my Fitbit would be even less impressive

I aim to be the guy who looks poor but can buy anything he wants cash to the surprise of the sales person.
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