^^^ Yes, I've noticed the same with brokers. I get constantly harassed by them because they have buyers and I ain't selling. I tell them "I'll sell if you can get me 20% over market", but never tell them what market is. And honestly, market keeps going higher for me because, if rates start to fall again and drop even half a percent, I stand to be able to re-cast all my debt and shave another $1500-2000 a month off by monthly payments before even taking into account what has accumulated into substantial principal reduction over the past 5 or so years...
This is why no one is selling. Why would someone sell a property worth $1.2 million that pays $10k/mo gross rent (that's an 8 CAP after you net out expenses) with $600k in debt on it when the payment on that at a 5% interest rate (including taxes) is less than $5k? What are you going to do with the $600k? Wouldn't you be better off just refinancing and pulling $300k out instead of pulling out $600k by selling and then paying 20% capital gains on it? Now with rates on commercial paper back around 5%, any additional fall in rates means you can refinance that and drive your payment even lower, again, why would you ever sell? That's not even considering the potential for long term appreciation. Even if you just assume the price increases at the rate of inflation long term, that $600k of debt rapidly diverges from the property value (which gains $36k a year just from inflation) especially as it is paid down by the amortization of the loan (which at the beginning of a $600k loan is about $1250/MO and increases with every payment).
The ONLY reasons you sell are if you need the money (which no one does right now) or if you think long term demand is going to wane.
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Originally Posted by marothisu
^ It seems as if some people are falling into the same trap of "prices will go up forever" as they did around a decade ago. In some cities at least. I've been told by a handful of friends in the industry to hold off on buying right now as the prices in NYC at least are too high, according to them. If a recession were to hit soon, I'd have to think that Chicago might be better suited than some other cities. Not sure about that part though. Just a hypothesis.
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I don't think that's what is happening today. I think today's prices are an utter lack of supply. Like I said, anyone who was in a precarious position debt wise was wiped up less than 10 years ago. A lot of guys like me are sitting on stuff we got virtually for free with zero reason to sell because, as TUP says, prices are absurd right now so where are we going to 1031 our profits into?
The thing is recessions don't happen because prices get too high, they happen because people have too much leverage and too little cash. Based on dozens of conversations I've had with various people from other investors to huge landlords to private equity people to just regular folks like my tenants or family, everyone is sitting on a massive amount of cash right now because they are terrified of another recession.
So while there absolutely will be another recession and it will probably be soon, it's not going to happen because people have paid too much for real estate, it will be caused by some other factor. Yes, some people have started paying too much for RE over the past two years or so, but nowhere near enough to actually cause some kind of systematic risk. Those people will be blown out in the next recession, but there are so many TUPs sitting on the sidelines waiting to swoop in as soon as prices make sense again that any correction in RE prices will have a pretty shallow bottom.
Again, it all goes back to the balance of supply and demand right now. You suddenly have a giant wave of Millenials that should have reached "peak home buyer" when they were say 27 who are now in their 30's and finally comfortable enough in their career or paid down their student loans to start looking. There are more Millenials than any generation including the Boomers. So you have that giant wave trying to crash against a beach of people who have no reason to sell in an ocean where the wind has shifted and the rollers are no longer hitting McMansion Kay, but instead all piling into urban walkable neighborhood or inner ring suburb sound.
Simultaneous to the Millenial issue, you have the fact that Boomers are now almost all empty nesters and ready to downsize. This means that massive oversized exurban homes are not only not preferred by Millenials, but are being ditched by Boomers. This means more and more housing units have to be provided where the market is because the second hand homes market has huge areas of dead weight.
All of this results in a perfect storm where there isn't a lot of supply, but there is a shit ton of demand much of which is not even being realized because it is all manifesting itself in the rental market as Millenials jaded by the housing bust aren't about to fall for that trick like Generation X did.
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