Real Estate Is About To Go Dead

So, only about 1/5-1/4 of home buyers are cash buyers. Everybody else has a mortgage. Typically (AFAIK), borrowers can lock a rate for 60-120 days.

Let's use the TYX as a proxy for mortgage rates.

https://schrts.co/RDEkPXUz

So if we look back 120 days, we can see that with each passing day, home buyers are going to be locking higher and higher rates, which means lower and lower prices they're able to afford. Obviously, some had shorter locks, too, and otherwise had bad timing, but the bottom line is that until very recently, there were a lot of buyers with low rate locks. That's changing as I type. 

I think within the next few weeks, this should begin to really bite and a few weeks further out, should cause real estate to hit the wall. Between that and a miserable stock market, a lot of excess cash could go to money heaven. That could take a lot of pressure off the Fed.

M

Latest NYSE REIT A/D line from last Friday shown below.

Home Builders (XHB) and Home Construction (ITB) are already down more than 27% since the beginning of the year.

Fib

So, only about 1/5-1/4 of home buyers are cash buyers. Everybody else has a mortgage. Typically (AFAIK), borrowers can lock a rate for 60-120 days. M

 

So, only about 1/5-1/4 of home buyers are cash buyers. Everybody else has a mortgage. Typically (AFAIK), borrowers can lock a rate for 60-120 days. M

Hmm, I thought most people had a 25 year or 30 year mortgage.
Where am I wrong?

Thanks, gis

 

15 and 30years, but to your point, you can lock in your 30-year rate for typically 60-120 days (while you look for a house to buy). The lower rate locks are expiring and now folks have to lock in rates at higher levels, if they want to buy a house with a mortgage.

With me?

Mark

 

So, only about 1/5-1/4 of home buyers are cash buyers. Everybody else has a mortgage. Typically (AFAIK), borrowers can lock a rate for 60-120 days. M

Hmm, I thought most people had a 25 year or 30 year mortgage.
Where am I wrong?

Thanks, gis

 

If you need a 25 or 30 year mortgage you can't afford it. 15 year mortgage and pay it off early  was the only way. The operative word being "was"

I remember when Iron Cross was in Vegas, back  when strippers owned half a dozen rental units.

It all crashed so he moved to Tulsa for the family oil business.

Then oil crashed.

Buy the bottom, sell the top

Wash, rinse, repeat.

So, only about 1/5-1/4 of home buyers are cash buyers. Everybody else has a mortgage. Typically (AFAIK), borrowers can lock a rate for 60-120 days.
 
Let's use the TYX as a proxy for mortgage rates.
https://schrts.co/RDEkPXUz

So if we look back 120 days, we can see that with each passing day, home buyers are going to be locking higher and higher rates, which means lower and lower prices they're able to afford. Obviously, some had shorter locks, too, and otherwise had bad timing, but the bottom line is that until very recently, there were a lot of buyers with low rate locks. That's changing as I type. 

I think within the next few weeks, this should begin to really bite and a few weeks further out, should cause real estate to hit the wall. Between that and a miserable stock market, a lot of excess cash could go to money heaven. That could take a lot of pressure off the Fed.
 
M

15 and 30years, but to your point, you can lock in your 30-year rate for typically 60-120 days (while you look for a house to buy).

 

Mark,

Locks cannot be done until a property is found. You cannot lock a rate while you look for a home...many wish you could. I have buyers who have watched the rates go from high 3's to low 5's in last 60-90 days. The rates are baked into the market, and then some.

 

15 and 30years, but to your point, you can lock in your 30-year rate for typically 60-120 days (while you look for a house to buy).

 

Mark,

 

Locks cannot be done until a property is found. You cannot lock a rate while you look for a home...many wish you could. I have buyers who have watched the rates go from high 3's to low 5's in last 60-90 days. The rates are baked into the market, and then some.

 

That is factually incorrect, at least in my market. My bank will lock in a rate today for you for 60 days. They'll renew it for another 60 days, too.

I actually did this very thing last year.

https://www.thirdfed.../early-approval

Prices for the whole neighborhood set by last sale...

Been through this a number of times...once the price drops start, usually builds into a disaster over next few years...

And this has the potential to be biggest disaster of my lifetime.

We got out of our last big property in Commiefornia (so sad to see what has become of the once greatest place on the planet) at just under a 3 cap a few months ago. Total insanity.

Just finished the 1031 into 7.9% multi-property portfolio here in Texas, and let me tell you, that was not an easy task to do in a 1031 time frame, in this market, with reasonably good quality properties, with reasonably recession proof tenants, while staying away from Class A, junky strip malls. and the now way overbuilt Hampton La Quinta type properties.

All of our backup properties were gone within a week of indentification. Luckily none of the primary ones fell through. If you are going to do a 1031, very important to actually get under contract within the 45 days!

Really did not want to buy any more real estate, but the tax hit was too much to bear with the CA 13%+ added in. Essentially, you can take a 37% hit on the new portfolio, and still come out OK, while continuing to earn on the entire amount.

So at least with the cap padding, we will not get hit as hard as the the crazy folks still going for 3% deals here in Austin. (we could not find single property in Austin worth buying...total insanity here, which I suspect is just about to come to a screeching halt)

And the 165% increase in monthly income (and free of CA tax) aint so bad either

And stiffing Commiefornia for huge Cap Gains just puts a big ol' smile on my face. (property basis from the 70's, so you can imagine!)