Was speaking with someone in my network (M7 mba student, soon to be working in RE) about the amount of RE interest/activity on WSO and he responded "With this amount of interest I should worry that I am entering an industry that's in a massive bubble!"
I fed him some a couple stats about the growth of WSO's RE forum (currently the #2 most viewed forum on the site based on views. Really started trending up Oct 2015) and he responded: "Thanks, that's super useful - also extremely worrying for me :)"
What are your thoughts?
Are you are inferring that we are in the midst of a massive real estate bubble due to an increase of interest in real estate on a random forum?
Forum that attracts the attention of young professionals choosing a field in which to make money in. I'd say it's actually a pretty damn good way to see what's up. Usually when something becomes the new sexy thing everyone wants to do (hedge funds pre 2008), startups and more startups today (unicorns anyone?) The trade is becoming over-crowded as everyone and there mother wants in. True there will always be winners and losers, but with more people in that creates a lot more potential losers!
I don't think we're in a "bubble." Asset prices, by and large, are justifiable based on interest rates, underlying rents, lender underwriting, available capital and overall supply/demand. Asset prices are "high" (i.e. returns are relatively low), but I don't see asset prices as entirely unjustifiable. Do I think prices could fall? Sure. But I don't see a bubble bursting since I don't really see a bubble (which I tend to think of as a huge run-up of an asset's price without underlying economic justification). You're probably more likely to see the bursting of a tech bubble than a real estate bubble.
not when those fundamentals are flawed. most of the demand is boomerang buyers using similar financing to the crisis. the music will stop again, it won't be 08, but it will be a correction. easy money will dry up and the overleveraged, of which there are many seeing as how they put down 0-3% with sub 620 credit scores, will falter.
I don't know where you are getting the "boomerang buyers" driving this market. Leverage is lower this time around and underwriting is more conservative. Also, yeah prices are higher than recession era, but I'm not sure what fundamentals you say are flawed. New supply coming on the market is much lower than historical norms which means demand will be increased due to fewer products for people to bid on. Classic supply/demand curve for now. I know there is more product coming on the market, but that kind of construction takes serious time.
A statement like "the music will stop again" is useless if you don't give reasoning. Of course it will, but you didn't give any support as to why which would help us understand your timeline for the correction.
And are you talking residential or commercial with your 0-3% statement? I don't know of anyone getting that leverage on commercial.
Absolutely everything about this. I can see specific markets cooling off, but price and cost escalations aren't exponential and there isn't massive amounts of spec activity.
Edit: AndyLouis WallStreetOasis.com - hah, why did it quote all of that about flagging the content?
To highly simplify commercial real estate into a single entity, yes Real Estate might be due for a correction. Asset prices are fairly high, and much of the acquisition-frenzy was driven by ridiculously low rates. There's a reason REITs tend to have an inverse correlation to interest rates. If we see 3 rate hikes this year, it might be the impetus needed to get holders to sell.
That being said, we're a far cry off from 2008. This is more of your garden variety business cycle sorta thing that I'm thinking will happen in the not so distant future.;
There are more artificial variables pushing up the market and keeping it up.
Take a look:
https://4.bp.blogspot.com/-aKwIQdcyJYc/WD4sAcLUSGI/AAAAAAAAOTA/qUKyo73P…" alt="Bub" />
Reference: The Evolution of U.S. Median New Home Sale Prices
fist bumps everyone
Good work, crew
Actually it's both of those things
There is never not a bubble brewing in both housing and CRE. They inevitably happen.
Guys, literally all through the 90's, the entire decade, the economy was good if not great (except 91' recession) and real estate was absolute shit. Apartments weren't even hitting debt coverage for over 5 years. Commercial was way worse than our recent recession. Look at loan delinquency rates of commercial loans in the early to mid 90's. I think it peaked at 13%. That's super high.
For sale housing was flat from 91' to about 99'...if you discount that for inflation it was down around 10% over an 8 year stretch. This all happening in fantastic economic times.
Anything can happen.
Edit - here is the Federal Reserves stats. For sale housing was crap during very low loan delinquency. Commercial loan delinquency in the recession peaked at about 8.75%. In the early 90's it hit 12%. The difference between 8.75 and 12 is an epic bloodbath. https://www.federalreserve.gov/releases/chargeoff/delallsa.htm
In other words, so long as you're always yelling "fire" you will eventually be right. The fundamental problem with a position like yours is that in-between market crashes is when you get wealthy in [name your asset class]. 90% of people make their money in real estate "between the crashes."
In response to the OP, I'll posit the argument that part of the RE forum influx is driven by the continued institutionalization of CRE as an asset class. It's intuitive that as the CRE complex gets more structure, (i.e. more analyst programs, more linear career paths, more transparency into the industry), more wall street types will bleed over to it
Especially for kids coming out of regional schools who are attracted to the linear career path and the perceived bling factor of big boy finance but can't or don't want to sling it in the IB route (I may speak from experience). The CRE analyst recruiting game seems a lot more regional and less insanely competitive than wall street
Real estate is such a micro business (location, product type, and product position) it's hard to make blanket statements about the entire industry. Even during the Great Recession there were areas that were relatively insulated from devaluation, both residential and commercial.
The real reason we saw a crash in prices was supply and demand; the market become oversupplied do to poor consumer decision making and slack underwriting standards. Since the recession, we've seen the shadow market (foreclosed properties/bank owned properties) almost entirely disappear and construction starts are at a 40 year low. In other words, supply/demand has normalized dramatically. Artificially low rates have probably slowed that normalization some, but on the whole we don't have anywhere near the amount of excess supply hitting the market we did 10 years ago.
Similarly, there is some speculation that low rates have caused a bubble. However, rates generally trend with inflation and with inflation comes more job and income growth. To that end, even if rates rise job and income growth should theoretically offset any added cost. Cost is what would inhibit demand and cause devaluation.
That being said, I think there are corners of the market that have become oversupplied for reasons that don't necessarily have to do with those that contributed to the Great Recession, but rather due to misjudging broad demographic and psychographic trends. These are the foundations of real estate. One example is luxury multifamily. Developers/Investors have made huge bets that millennials will rent and stay in urban centers longer that previous generations. They got one side of the equation right, but it turns out Millennials are poor. As a result, buildings are leasing up incredibly slow, with some of the larger ones never being able to stabilize. Anecdotally, there are at least 10-15 new luxury multifamily buildings that have popped up in our downtown area. My fiance (corporate dev) and I (developer) look at the pricing and gasp - there is absolutely no way average or even slightly above average earning people can afford to pay what these buildings demand (at least without spending 60%+ of their take home pay.) Consequently, all are offering insane concessions to get people through the door.
AndyLouis , our markets are now global. The US housing market is actually where the global rich come to acquire our assets. This is not organic growth of up and coming wealth US citizens but rather our land being carved up by the global elite.
I highly doubt our workforce alone can sustain the current market without the influx of new foreign money.
why am i getting hit with monkey shit for posting this? just curious
We're scared of bubbles