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Real estate market is in a full blown correction

37,854 Views | 169 Replies | Last: 2 yr ago by fig96
Bob_Ag
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1:21p, 6/13/22
AG
I appraise in that neighborhood regularly, they still shouldn't have much of an issue selling if they are priced right. It's a popular neighborhood for investors and typically at a price point with a larger buyer pool.

Price decreases are finally starting to become regular in listings which is needed as an indicator the market is evening itself back out, a bit.

Rising interest rates have certainly had an impact on the market, but its a combination of things at this point. Property tax bills for most buyers are thousands of dollars higher on average unless they are able to qualify for the new pro-rated HS tax exemptions. Interest on a typical 30 year note (in my neck of the woods) these days is around $2k a month higher. Then you factor in massive inflation and historically high gas prices, people just can't afford any more of an increase in pricing levels.

If we get to a point of layoffs in the tech sector, the Austin economy is in for a world of hurt. Debt levels are crazy high.
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rlb28
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3:28p, 6/13/22
AG
Never seen so many beach houses for sale at more than $1 million... this is just the most recent (todaY) 77554 Galveston

actually seeing some at $700-$800/SF
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EclipseAg
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In reply to rlb28 • 1:27p, 6/14/22
AG
rlb28 said:
Never seen so many beach houses for sale at more than $1 million... this is just the most recent (toda) 77554 Galveston

actually seeing some at $700-$800/SF
Yeah ... here's one in Pirates Beach that is almost $2 million -- $822 a square foot.

https://www.har.com/homedetail/4218-san-domingo-dr-galveston-tx-77554/2651293

It's beautiful, with great views. But that beach erosion would make me nervous. Back in the day, those streets all had complete cul-de-sacs. Gone now.

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MAS444
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In reply to EclipseAg • 2:17p, 6/14/22
AG
F that - but looks like a great place to rent for a weekend!
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southernskies
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In reply to EclipseAg • 4:13p, 6/14/22
EclipseAg said:
rlb28 said:
Never seen so many beach houses for sale at more than $1 million... this is just the most recent (toda) 77554 Galveston

actually seeing some at $700-$800/SF
Yeah ... here's one in Pirates Beach that is almost $2 million -- $822 a square foot.

https://www.har.com/homedetail/4218-san-domingo-dr-galveston-tx-77554/2651293

It's beautiful, with great views. But that beach erosion would make me nervous. Back in the day, those streets all had complete cul-de-sacs. Gone now.

I see in the pictures that is already on the beach
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southernskies
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4:14p, 6/14/22
Picture #5, in the background
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MAS444
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In reply to southernskies • 4:28p, 6/14/22
AG
Looks like Beyonce's family owns that one.
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EclipseAg
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In reply to southernskies • 4:51p, 6/14/22
AG
southernskies said:
EclipseAg said:
rlb28 said:
Never seen so many beach houses for sale at more than $1 million... this is just the most recent (toda) 77554 Galveston

actually seeing some at $700-$800/SF
Yeah ... here's one in Pirates Beach that is almost $2 million -- $822 a square foot.

https://www.har.com/homedetail/4218-san-domingo-dr-galveston-tx-77554/2651293

It's beautiful, with great views. But that beach erosion would make me nervous. Back in the day, those streets all had complete cul-de-sacs. Gone now.

I see in the pictures that is already on the beach
Yep.

I know the area well.

Those front-row homeowners are fighting a losing battle to keep their concrete pads on solid ground and remain behind the vegetation line.

Doesn't matter how many hay bales/barricades you put up or how much grass you try and grow, the gulf wins every time.

All it would take is one or two more major storms -- doesn't even need to be a hurricane -- and that $1.75 million home will be front row. For awhile, anyway.

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tlepoC
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In reply to EclipseAg • 6:48p, 6/14/22
AG
So you are saying to buy it now and flip it in 5 years at higher price since it will be beachfront at that point. Genius
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tlepoC
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In reply to EclipseAg • 6:48p, 6/14/22
AG
Dp
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aggiedata
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8:37p, 6/14/22
AG
Thoughts?

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Sea Speed
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In reply to EclipseAg • 9:05p, 6/14/22
AG
Barrier islands by nature of their entire existence are constantly moving and shifting. The only part of galveston that will stay put is behind that seawall, which causes more rapid erosion elsewhere on the beach front. People have been trying to stop water from doing water things since the dawn of time.
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The Fife
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In reply to Sea Speed • 8:38a, 6/15/22
See also: Folly Beach, Morris Island, because of the jetties at the Charleston harbor
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coastalAg
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9:02a, 6/15/22
AG
The front row of Pirates got hammered during Ike. There has been a ton of development on the west end since then too. Another major storm surge hurricane would be pretty devastating down there.
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South Platte
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9:47a, 6/15/22
I'm not a real estate professional by any stretch. But when I hear "full blown correction" I think of drastically falling prices, foreclosures, people underwater on loans, etc. I'm not sure we are going to have a "full blown correction" unless people start losing their jobs.

2008 was awful. But going into 2008 home values hadn't increased a significant amount - - it was a product of people buying homes they couldn't afford and fraud in the industry.

This time around, homes have increased dramatically, but if values pullback, what does that really mean? Have their been as many purchases at the top, or have people enjoyed the value increase without loan exposure? Lower values mean lower property taxes. Seems like the most exposed would be real estate investment companies or the average Joe who bought a rental property . . . not primary home owners.

For what it's worth, I recently invested a small amount in DRV, a real estate bear market ETF, as I think the real estate management companies and REIT's have some exposure.
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EclipseAg
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In reply to tlepoC • 10:35a, 6/15/22
AG
tlepoC said:
So you are saying to buy it now and flip it in 5 years at higher price since it will be beachfront at that point. Genius
That's probably how it will work. LOL
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double aught
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In reply to MAS444 • 10:39a, 6/15/22
AG
MAS444 said:
F that - but looks like a great place to rent for a weekend!
Thus the price.
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agsalaska
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In reply to South Platte • 11:23a, 6/15/22
AG
South Platte said:
I'm not a real estate professional by any stretch. But when I hear "full blown correction" I think of drastically falling prices, foreclosures, people underwater on loans, etc. I'm not sure we are going to have a "full blown correction" unless people start losing their jobs.

2008 was awful. But going into 2008 home values hadn't increased a significant amount - - it was a product of people buying homes they couldn't afford and fraud in the industry.

This time around, homes have increased dramatically, but if values pullback, what does that really mean? Have their been as many purchases at the top, or have people enjoyed the value increase without loan exposure? Lower values mean lower property taxes. Seems like the most exposed would be real estate investment companies or the average Joe who bought a rental property . . . not primary home owners.

For what it's worth, I recently invested a small amount in DRV, a real estate bear market ETF, as I think the real estate management companies and REIT's have some exposure.
Good post.

I think the term 'full blown correction' is vastly overstating what's going to happen. Generally when I see that I think that people just assume it is 2008 all over again without really understanding the causes of 2008 and the current market.

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TexasAggie008
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12:01p, 6/15/22
AG
Also think its notable that even if, say, Austin has a relatively high number of tech layoffs - any of those workers who recently bought a home there and want to stay in Austin can prettyyyyy easily get a new job working remotely, making it a moot point that tech IN Austin isn't hiring at that time.

Obv was not the case in 2008 or even 5 years ago.
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Kenneth_2003
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In reply to Sea Speed • 12:43p, 6/15/22
AG
Sea Speed said:
Barrier islands by nature of their entire existence are constantly moving and shifting. The only part of galveston that will stay put is behind that seawall, which causes more rapid erosion elsewhere on the beach front. People have been trying to stop water from doing water things since the dawn of time.

Easy way to get every beach in Texas to grow. The Corps of Engineers though aren't going to let the Mississippi River do its thing. Instead they're going to fight to keep it in its channel, spilling sediments into the deep offshore GOM. Let it move, wash out Morgan city (sorry?, and return those sediments to the bayou country estuaries and the upper gulf coast.
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Sea Speed
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In reply to Kenneth_2003 • 2:24p, 6/15/22
AG
Meanwhile they are destroying untold amounts of marsh land in the delta
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Diggity
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In reply to TexasAggie008 • 2:56p, 6/15/22
AG
TexasAggie008 said:
Also think its notable that even if, say, Austin has a relatively high number of tech layoffs - any of those workers who recently bought a home there and want to stay in Austin can prettyyyyy easily get a new job working remotely, making it a moot point that tech IN Austin isn't hiring at that time.

Obv was not the case in 2008 or even 5 years ago.
lots of tech companies are shedding employees nationwide so I wouldn't be so confident about how easy a new remote gig with similar comp will be.

As far as home values....at the end of the day, you can't increase carrying costs by 30%+ and not expect that to have an effect on pricing. Will that look like 2008? very doubtful, but prices will drop in most markets.
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htxag09
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In reply to TexasAggie008 • 2:58p, 6/15/22
AG
TexasAggie008 said:
Also think its notable that even if, say, Austin has a relatively high number of tech layoffs - any of those workers who recently bought a home there and want to stay in Austin can prettyyyyy easily get a new job working remotely, making it a moot point that tech IN Austin isn't hiring at that time.

Obv was not the case in 2008 or even 5 years ago.

I think this may be a false sense of security. If Austin has a relatively high number of tech layoffs it's probably likely that the entire industry is going through similar and remote jobs won't be that easy to come by.

Not saying that's going to happen. Just pointing out that falling on remote jobs won't always be a possibility just because it is now.
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p_bubel
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In reply to coastalAg • 3:00p, 6/15/22
coastalAg said:
The front row of Pirates got hammered during Ike. There has been a ton of development on the west end since then too. Another major storm surge hurricane would be pretty devastating down there.
Yeah, I believe a buddy of mine currently has a lot out to sea at this point. (It's been a while, but I think that was the hood it was in) They'd been owners since the 60s or 70s or something like that.

Maybe one day, they'll be able to build again, but I doubt it.
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South Platte
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In reply to agsalaska • 3:31p, 6/15/22
agsalaska said:
South Platte said:
I'm not a real estate professional by any stretch. But when I hear "full blown correction" I think of drastically falling prices, foreclosures, people underwater on loans, etc. I'm not sure we are going to have a "full blown correction" unless people start losing their jobs.

2008 was awful. But going into 2008 home values hadn't increased a significant amount - - it was a product of people buying homes they couldn't afford and fraud in the industry.

This time around, homes have increased dramatically, but if values pullback, what does that really mean? Have their been as many purchases at the top, or have people enjoyed the value increase without loan exposure? Lower values mean lower property taxes. Seems like the most exposed would be real estate investment companies or the average Joe who bought a rental property . . . not primary home owners.

For what it's worth, I recently invested a small amount in DRV, a real estate bear market ETF, as I think the real estate management companies and REIT's have some exposure.
Good post.

I think the term 'full blown correction' is vastly overstating what's going to happen. Generally when I see that I think that people just assume it is 2008 all over again without really understanding the causes of 2008 and the current market.

Thanks. Just a hunch, but it seems like we could see a stalemate in real estate. Home values might drop some, but the enormous wealth transfer taking place to my generations X and Z should allow them to avoid foreclosure, even with some job losses. High interest rates are going to keep people from selling and moving/upgrading. I'm sure there are some professional real estate guys on here that know 10x what I know.
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JP76
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In reply to South Platte • 6:20p, 6/15/22
Joe bought a house in Austin for 500k
Joe borrowed 400k on it
House goes up 40% last year to 700k and Joe refi's 560k
Joe now owes 560k on it and blows the other 160k cash on 2 vehicles, a boat, and numerous trips to cabo.
Market rolls over and housing declines 30% in Austin like it did 2000-2002 due to all the tech layoffs.
Joe still owes 560k on a house that has a current market value of 490k
Joe gets laid off.
Joe let's the house foreclose bc he is 70k underwater and can't pay the note

Now multiply this time X number of Joes
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Bob_Ag
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In reply to JP76 • 6:33p, 6/15/22
AG
JP76 said:
Joe bought a house in Austin for 500k
Joe borrowed 400k on it
House goes up 40% last year to 700k and Joe refi's 560k
Joe now owes 560k on it and blows the other 160k cash on 2 vehicles, a boat, and numerous trips to cabo.
Market rolls over and housing declines 30% in Austin like it did 2000-2002 due to all the tech layoffs.
Joe still owes 560k on a house that has a current market value of 490k
Joe gets laid off.
Joe let's the house foreclose bc he is 70k underwater and can't pay the note

Now multiply this time X number of Joes
The labor market is the big variable. A lot of people seem to think that will continue to be strong even into a recession, but I don't believe it for a second.

And I can't emphasize enough that in the Austin market, there are so many of those Joes you mentioned.
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clobby
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6:37p, 6/15/22
AG
I was living in the Vegas area when this happened in 2010. The guy I was renting a room from just took my cash and let his house foreclose on after I had moved out. The next door neighbor just quit paying his mortgage and it took over a year for him to get foreclosed on. This was in a nice neighborhood in Henderson. Everyone had a nice RV, wakeboard boat, and a sweet truck.
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aggiedata
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6:41p, 6/15/22
AG
I remember the days when people in Austin were walking away from their house leaving their leased BMWs and Land Rovers in the garage. Just walking away from it all.
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agsalaska
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In reply to clobby • 7:33p, 6/15/22
AG
clobby said:
I was living in the Vegas area when this happened in 2010. The guy I was renting a room from just took my cash and let his house foreclose on after I had moved out. The next door neighbor just quit paying his mortgage and it took over a year for him to get foreclosed on. This was in a nice neighborhood in Henderson. Everyone had a nice RV, wakeboard boat, and a sweet truck.


I moved to Vegas in December 08 and bought a house in Henderson is May 09. Bought it for 205000. It sold brand new in 2004 for $483000. I sold it when I moved in 2012 for like 202,000. That house is still, even today, not worth $483,000.

Nothing close to that happened in Texas.


What y'all are all describing with Joe in Austin is certainly a risk but nothing like the variable interest rate loans and everything else that happened in 08
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South Platte
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In reply to JP76 • 12:20a, 6/16/22
JP76 said:
Joe bought a house in Austin for 500k
Joe borrowed 400k on it
House goes up 40% last year to 700k and Joe refi's 560k
Joe now owes 560k on it and blows the other 160k cash on 2 vehicles, a boat, and numerous trips to cabo.
Market rolls over and housing declines 30% in Austin like it did 2000-2002 due to all the tech layoffs.
Joe still owes 560k on a house that has a current market value of 490k
Joe gets laid off.
Joe let's the house foreclose bc he is 70k underwater and can't pay the note

Now multiply this time X number of Joes


I think you forgot to mention that Joe's wife divorced him and took her family money with her.

What you describe gets bantered around on forum 57 weekly.
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Red Pear Realty
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In reply to JP76 • 8:13a, 6/16/22
Sponsor
AG
JP76 said:
Joe bought a house in Austin for 500k
Joe borrowed 400k on it
House goes up 40% last year to 700k and Joe refi's 560k
Joe now owes 560k on it and blows the other 160k cash on 2 vehicles, a boat, and numerous trips to cabo.
Market rolls over and housing declines 30% in Austin like it did 2000-2002 due to all the tech layoffs.
Joe still owes 560k on a house that has a current market value of 490k
Joe gets laid off.
Joe let's the house foreclose bc he is 70k underwater and can't pay the note

Now multiply this time X number of Joes

Except this is how tech works:

Joe is 27 years old.
Joe was one of the original 30 members of a startup in Austin because he learned to code.
Startup goes public and Joe's equity payout puts $50 million in his bank account after working there for just a couple of years.
Joe doesn't know what to do with all this money, so he buys a house in the East Side, another on LBJ, a ranch in the hill country, and a new electric boat to skirt around the lake in. All were paid with cash.
Joe takes up hiking and spends his time on pet projects going forward.
None of this real estate hits the market again until Joe dies 60 years from now.
Anyone not working in tech can't afford rent at all and like 15 people end up living in a 3/2 "incubator" because rent is so expensive and nobody can afford to live otherwise.

Sponsor Message: We Split Commissions. Full Service Agents in Austin, Bryan-College Station, Dallas-Fort Worth, Houston and San Antonio. Red Pear Realty
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MAS444
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In reply to JP76 • 8:27a, 6/16/22
AG
Quote:
Joe now owes 560k on it and blows the other 160k cash on 2 vehicles, a boat, and numerous trips to cabo.
Market rolls over and housing declines 30% in Austin like it did 2000-2002 due to all the tech layoffs.
Joe still owes 560k on a house that has a current market value of 490k
Did Austin real estate really lose value like that?
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Diggity
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2:09p, 6/16/22
AG
Fannie Mae now predicting a 13.5% drop in sales volume this year and about the same next year.

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evestor1
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In reply to Diggity • 2:30p, 6/16/22
I completely agree with Fannie Mae here. In Texas, outside of people selling off previous rentals to avoid property taxes...there will not be many people selling.


When mortgage rates go down my assumption is that home values are going to soar again.
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