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larrywww

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Reply with quote  #1 
So, here is your latest shot of Bruce Norris news (all of 3 weeks old).

Bruce now thinks that in this cycle we will skip Quadrants 2 and 3 (or power through them quickly without serious price damage) and start building on current price in Quadrant 4.  Once we do this, he predicts prices will go up, albeit slowly.
We will get to Quadrant 1 where prices are flat.  We usually get to Q2 and prices go down.
But he thinks that we will move quickly through Q3 (or skip it altogether) and then start building on a peak price of 590K in another Quadrant 4.  So, basically, we are going to start at the peak in another Peak 4 and start (slowly) building on it.

He also says that Lenders have made deals to keep homeowners in place and that they have also have started going into the business of renting them out (rather than have them hit the market as an REO).  They are more typically pursuing a deed in lieu and then renting out the house.  (They were not allowed to do rentals during the crash--but are now).  How high are we headed?----a trip to the moon on gossamer wings??!!!

This will support those who are optimistic about the current market.

He does make statements about why the Florida market is more desireable than  California, but nothing about a timing model for Florida.

https://thinkrealty.com/radio_episodes/good-timing-with-bruce-norris/


Anyone feeling superfrothy?  Blue light special time.   A realty cycle without (essentially) price damage---that is truly novel.

Bruce also states in earlier interview that you only have to look at one chart to know when the crash will come.

Anyone care to guess which factor?  





Nyou

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Reply with quote  #2 

From the Four Phases of the Real Estate Cycle the price in Quadrant 4 should go up or go down?




larrywww

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Reply with quote  #3 
You can hear what he says at the end of the Think Realty audio. But I think there is a real question at this point-----is the market even following his cycles model at this point?  Of course he will complain about interference with the free market that have sidelined his model---and there is truth to that.  He has said that he doesn't see how there will be a price crash, hence skipping cycles 2 and 3, because of low inventory, low foreclosures, low REOs, no building, etc.  Lenders aren't even processing REOs at this point, according to him---they get a deed in lieu and in most cases just rent it out.  I think their plan is to discourage any kind of dramatic movement in the market and it appears they have no intention of solving the low inventory and other problems.

Also price increases (or price decreases) have been smaller in magnitude in most areas.    I suppose it's better than the cryptocurrency market which seems to have absolutely no rhyme or reason.  I think what Bruce would say at this point is that relying on predictions about significant price increases would probably constitute speculation.  It seems like prices are going to meander---but no serious crash either.  The one sector he has said that has topped out is multifamily---and that isnt even the asset class on which his model was (primarily) based.  I think what he is saying is that except for what predictions he has made in the above audio---beyond that we can't predict with any certainty.  We're kind of off the reservation----I  think any further price increases must be somewhat more modest since this can't go on forever----but for the short term I don't think there is any certain prediction.  Look at it this way---this is not the kind of market that Bruce's model was supposed to deal with---the normal market forces.  What we are doing now is unprecedented, so who really knows?
daveklee

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Reply with quote  #4 
Thanks Larry for the summary on Bruce's latest thoughts.  I'll check out the links.
kaihacker

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Reply with quote  #5 
I have heard that there is some cap rate compression in the So Cal multifamily space, but I have not really looked into it or seen solid data on that.  It makes sense that cap rates could rise as a direct result of rising interest rates.  
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mlreits

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Reply with quote  #6 
Quote:
Originally Posted by kaihacker
I have heard that there is some cap rate compression in the So Cal multifamily space, but I have not really looked into it or seen solid data on that.  It makes sense that cap rates could rise as a direct result of rising interest rates.  


I agree. With the rising interest rates, the multifamily in our market is finally stalling. 

Chase just gave us a quote of 4.93% for a 5/1 ARM. Basically, the multifamily assets in our market would have negative leverage if they were to finance. Things are sitting. Banks are getting hungry as people have stopped refinance and the lack of transactions doesn't help either.

It's starting to get interesting. Patience is a virtue. We're loading up our dry powder and patiently waiting for the coming correction.

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larrywww

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Reply with quote  #7 
It has been suggested that some cities (bay area, etc) are immune from any kind of serious clawback---and that may be true.

I hear that in the last housing downturn Vancouver decreased about 12% and then started back appreciating---more like a pause than a downturn.

Does anyone know how far down prices crashed during the last downturn in the bay area?  (Not my area).

Some have argued that international "hot cities" maybe should have their own kind of metric.

Alot of these hot cities are to some extent fueled by airbnb type strategies----and probably won't see a downturn unless cities restrict these kind of short term rentals. 

The city of london, for example, has imposed a 90 day annual limit on short term rentals.

https://www.luckeyhomes.com/en/tips/the-90-day-annual-limit-in-london

I'm not sure if that is going to be enough to restrain the market---does anyone know?

I have seen some sensationalistic headlines about a crash, but I don't really follow this market.
https://www.independent.co.uk/voices/housing-market-property-london-south-east-burst-bubble-inflation-home-owner-a7918556.html

I'm not sure whether we will see a crash in prices or just a flattening out---or what.  The problem is that returns on better multifamily assets have been scarfed up by the REITs, insurers and other large players leaving only the leftovers for the smaller investors.   Right now there is still so much money chasing returns, no one really knows what will happen----although it seems hard to believe that returns could continue to increase materially.  Not only are cap rates compressing, but the favored assets types seem to be dwindling as well---not retail, not (usu) office, etc.---so what is left?

daveklee

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Reply with quote  #8 
Was wondering if anybody has any current insight on the coastal San Diego areas.  Has the market stalled?  I've been hearing from several agents that June and July was eerily slow.
larrywww

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Reply with quote  #9 
Another point of view is represented by the UCLA housing letter.

"Nevertheless, despite rising interest rates, real estate investors remain enamored  with investing in rental apartments.  It appears that these investors are willing to look through what they perceive is a temporary softness in the high end apartment market."

No crash, just "temporary softness" so far.

Although if the high end of the market is starting to get soft that may be even better.

Although I am not sure I have seen alot of softness in that market in terms of softness in terms of sales of high end rental properties.  Even if it is true that rents are flattening and the returns for REITs are starting to retreat since rents are no longer rising with high end properties.  The truth is that these rents couldn't keep rising forever, especially since incomes aren't keeping track.

Part of the problem, as the article observes, is that the retail market is challenged and the industrial market is already white hot.

And construction of multifamily is keeping strong due to investor demand.

The lower end apartment market, according to the article, has a "temporary softness" and maybe a flattening of prices, but no real crash.

But I'm not sure this is a permant situation---so we will see what happens next year as rates continue to rise.

http://www.anderson.ucla.edu/Documents/areas/ctr/ziman/UCLA_Economic_Letter_Shulman_06.15.18.pdf

Zillow polled a group of experts and their conclusion was that residential housng (not multifamily) will crash by the 1st quarter of 2020.
https://www.marketwatch.com/story/economists-say-homes-could-go-on-sale-in-2020-when-the-next-recession-hits-2018-05-22

larrywww

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Reply with quote  #10 
The Norris Group posted their first audio about the I Survived conference in late September.

Some highlights:

 Zillow had originally stated that they wouldn't be competing with agents.  But both Zillow and offer (another company, apparently) have the technology to figure out when a homeowner is searching for properties.  Zillow is now cooperating with open door in selling houses.  There is also an organization called dotloop.  So, it appears that Zillow may be competing with agents at this point, although the details will be available 

Aaron indicated that Zillow may try to model itself on Carmax (in the same way that Carmax is competing with used car sales, etc).

It seems like agents are going to have it tough--they are already dealing with very low inventory.

Same with investors----given the increasing involvement of hedge funds and organizations like opendoor, etc.

Sean O'Toole said years ago that increasing competition is coming into the industry.
SFL

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Reply with quote  #11 
Quote:
Originally Posted by larrywww


Aaron indicated that Zillow may try to model itself on Carmax (in the same way that Carmax is competing with used car sales, etc).

It seems like agents are going to have it tough--they are already dealing with very low inventory.



What has set Carmax apart in the used car business is that Carmax will quickly and without charge make a firm cash offer for any car, with that offer being valid for seven days and a certain number of miles.  Thus, anyone considering selling a car can quickly and easily obtain a firm offer from Carmax, while retaining the option to shop the car around for a few days if they wish to try to get a better price.  Carmax has built up a good reputation over the years, so they get lots of business.

Zillow, through its "Zillow Offers" program, is attempting something similar, although at this point it is only active in segments of the Phoenix and Las Vegas markets. 

https://www.zillow.com/marketing/zillow-offers-faq/

https://www.zillow.com/marketing/zillow-offers-faq-agents/

Zillow is a public company which reports to its investors on a quarterly basis.  Anyone with enough interest in this can simply read the company's public filings, and there are also likely to be transcripts floating around of quarterly conference calls with stock analysts.

It will be interesting to see how well this program succeeds.  There clearly is some demand for it.  As with the sale of most other things, sellers have the option of a quick sale at a price which is likely to be on the low side, or holding out for more through a lengthier, more complicated sales process with no guarantee of a satisfactory outcome.  

From the above links, it does not seem to me like Zillow is cutting out real estate agents.  However, Zillow will certainly steer business to the extent it can to its preferred agents, and those agents will in one way or another compensate Zillow for that status. 

The success of this program will depend in part on whether Zillow can keep margins somewhat reasonable.  If they get a reputation for extreme lowball offers, then fewer people will seek them.  They will have an interest in appearing reasonable, even if the offers are a bit low.  On the other hand, once they have made an offer, whether extreme lowball or otherwise, Zillow will have the opportunity to introduce the prospective seller to their preferred agents even if its offer isn't accepted.  So this may result in more leads being directed to Zillow's preferred agents than would be the case if the program didn't exist, even if few people actually accept the Zillow offers.

Interesting developments!  Soon enough, there will be word from the Phoenix and Las Vegas markets regarding how this is affecting real estate agents.  

larrywww

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Reply with quote  #12 
I feel like there is an irony in all of this----Bruce Norris made his reputation by predicting the real estate crash----but now so many of the original controlling factors have been sidelined and/or made irrelevant.  If you think about it, it's just kind of strange.  I think we might start thinking about real estate in California (maybe not everywhere) as a kind of  global market given the participation of so many foreign and out of state buyers.

I'm not suggesting a novel theory so much as maybe it's time to throw out the old model and (somehow) start fresh.   The fact that Bruce Norris has a theory that would work in a regular maket---even though this isn't that---how far does that get you?

The other question at the back of my mind----is there only one way that this market could end?  Now he's talking about skipping quadrants and going back to the Quadrant 4----What does this tell us about when the market crashes?  We have never had a theory to predict either the stock market or the economy in general---and if that is what will control the outcome, where does that leave us?  Maybe it's asking too much----but if the only way to make predictions is to know what is going to happen with the stock market or economy in general----well if that is how the real estate market is going to crash, good luck with trying to figure that out.

I know very little about the car business---so I am not saying Carmax is good or bad---I think Aaron's comment was about market share.   And given the public's poor opinion of the used car business, maybe this was good, I don't know.

But I really do NOT believe that giving Wall Street a larger role in the real estate market is NOT going to be a good idea.  (And companies like Zillow when they refer out business are more likely to resort to REITs, hedge funds and other large companies.)

Nothing good happens when Wall Street, hedge funds, and other large market players try to crowd out what was once a reasonable way to make good returns by smaller investors.  I don't trust Wall Street---after this last crash, who does?

brycewheeler

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Reply with quote  #13 
Thank You SFL  for your many thoughtful analyses to many of the posts on this chat 
Board.  Your insight is truly remarkable and we are lucky to have such a great mind working on problems presented on our Board.  Are you an Economics Professor by any chance?

We are fortunate to have you in our chat group.  I enjoy all your posts.

Bryce
larrywww

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Reply with quote  #14 
Bruce Norris Interview with Christopher Thornberg.  No Predictions about what when the recession might hit.  He believes that a trade war with Europe would have been enough, but since that threat has been walked back by the Trump administration,  He doesn't see this as happening.  He doesn't see the trade war with China as sufficient causation.  
larrywww

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Reply with quote  #15 
Bruce Norris appeared on a multifamly panel (sorry, not on Youtube).   All of the presenters were asked whether multifamily would go up or down.  Bruce admitted that multifamily wasn't his area of expertise, but said that he knew that houses/SFRs would NOT decrease in value soon.

Someone pointed out that if houses are still increasing in value, then this would mean that multifamily would NOT crash.  After all, if houses are increasing in value and becoming even less affordable, what alternative do most renters have?  I think it's an interesting argument.

One of the odd things that Bruce Norris seems to believe is that he thinks that mortgage rates will crash----maybe even hit zero.
And if that happens, then clearly both the housing and multifamily markets will continue their rally.   But the problem is that very few experts (except Bruce) think that negative interest rates are going to happen.   Although it is true that interest rates tend to go down in a recession or other downturn, there are some who believe that the higher rates will persist----and cause an end to the rally in both the housing and multifamily markets.

I never thought about this relationship between the two markets, but it seems like if housing is going to maintain its high prices, this may also continue to buoy the multifamily market.

But I think a more common view is that higher interest rates will cause a recession and an end to the housing market----and also stop appreciation in the housing market---even if the market doesn't seriously crash.

I think the outlook is going to continue to be confusing until the economy actually hits the skids----and the inversion of the yield curve seems to promise that.   


SFL

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Reply with quote  #16 
Bryce - thanks for your kind words!

I have learned a lot from posters on this Board, many of whom have been remarkable in their generosity in sharing their knowledge and - in particular - their experiences.  Usually there is a lot more to learn from deals gone bad than from deals gone right.

No economics professorship here.  I have had some classes in finance and accounting, but the majority of my working life has been spent working for small businesses in which I have had an equity stake, so it has always been necessary to know at least a little about quite a lot.  It has also been important to be able to separate fact from fiction, and to figure out what is important and what is not.
lukasbmw

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Reply with quote  #17 
Bruce seems to think the market will stay strong. The company I work with owns 67 properties in San Diego county. We're no longer getting bidding wars on our flips and they are taking longer to move.

Tonight's speaker (RC) seems to think a real crash is ahead. I'm curious to hear what he says...

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larrywww

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Reply with quote  #18 
About the "market stalling", this is what one commentator says---Sales are stagnating because of low inventory and/or high prices:

https://slate.com/business/2018/08/home-sales-are-slowing-but-theyre-not-going-to-crash.html
larrywww

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Reply with quote  #19 

I'm not aware of anyone saying the market is crashing soon in the traditional sense---which doesn't mean that it might be relatively flat (or maybe a bit negative).

These are more like the horse latitudes----not much movement.

Bruce's website contains the following statement (to go along with his cashing in on a boom seminar)


Opportunity is here! Don’t be the investor nail-biting on the sidelines waiting for real estate Armageddon. Investors that have shifted gears know exactly what they have to do to succeed today and they are buying up a storm. Don’t miss out! You can do it too. It’s not “magic.” It’s not “luck.” It’s not even “who you know.” Success in this market comes from applying a set of predetermined skills and strategies – or in plain language, “know-how.” And it’s downright formulaic. Once you have the formulas, you’ll know how to use them again and again in a market like this one.

I'm a bit more negative about multifamily due to rising interest rates, and for me if prices are flattening out then my incentive for sticking with the market is not nearly as great.

You don't have a crash, even if:

1. Sales will continue to decline due to the shortened inventory and unaffordability;
2. Appreciation may not be guaranteed;
3. There is always a seasonal winter decline.
4. The bottom of the market is grossly overinflated.

Even in the apartment world there is little evidence that the market has crashed (and Bruce doesn't really consider himself an expert on that asset class).

Every investor has to define their own parameters----when to exit the market----when it isn't worthwhile any longer.  (It doesn't mean you stop making offers, but you can't pay anything approaching the current retail price, etc).

Given that almost every asset class seems to be in a neverending bubble, we are overdue for corrections in almost all asset classes.

This is what Bruce Norris said a month or so ago




larrywww

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Reply with quote  #20 
New Zealand is now banning foreigners from owning properties, although there are some exceptions (units in multifamilies under construction, etc).

Vancouver now has a so called "speculation tax" (mainly aimed at foreign buyers).

But these efforts are more of the exception rather than the rule.

Although buying foreign real estate for Americans is tougher given the financing is usually a big issue.
larrywww

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Reply with quote  #21 
Hawaii is about to be hit by a hellacious storm.   CNN is reporting that:

1. The last serious hurricane caused 3 billion in damage.
2. There are reports of landslides blocking roads.

Hope it turns out OK.
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