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Trouble Ahead For The Housing Market

We're starting to see rising supply & flat/declining prices
Monday, July 16, 2018, 3:27 PM

Our good friend John Rubino over at DollarCollapse.com just released an analysis titled US Housing Bubble Enters Stage Two: Suddenly Motivated Sellers.

He reminds us that housing bubbles follow a predictable progression:

  • Stage One: Mania -- Prices rise at an accelerating rate as factors like excess central bank liquidity/loose credit/hot foreign money drive a virtuous bidding cycle well above sustainably afforable levels.
  • Stage Two: Peak -- Increasingly jittery owners attempt to sell out before the party ends. Supply jumps as prices stagnate.
  • Stage Three: Bust -- As inventory builds, sellers start having to lower prices. This begins a vicious cycle: buyers go on strike not wanting to catch a falling knife, causing sellers to drop prices further.

Rubino cites recent statistics that may indicate the US national housing market is finally entering Stage Two after a rip-roaring decade of recovery since the bursting of the 2007 housing bubble:

  • the supply of homes for sale during the "all important" spring market rose at 3x last year's rate
  • 30 of America's 100 largest cities now have more inventory than they did a year ago, and
  • mortage applications for new homes dropped 9% YoY

Taken together, these suggest that residential housing supply is increasing as sales slow, exactly what you'd expect to see in the transition from Stage One to Stage Two.

If that's indeed what's happening, Rubino warns the following comes next:

Stage Two’s deluge of supply sets the table for US housing bubble Stage Three by soaking up the remaining demand and changing the tenor of the market. Deals get done at the asking price instead of way above, then at a little below, then a lot below. Instead of being snapped up the day they’re listed, houses begin to languish on the market for weeks, then months. Would-be sellers, who have already mentally cashed their monster peak-bubble-price checks, start to panic. They cut their asking prices preemptively, trying to get ahead of the decline, which causes “comps” to plunge, forcing subsequent sellers to cut even further.

Sales volumes contract, mortgage bankers and realtors get laid off. Then the last year’s (in retrospect) really crappy mortgages start defaulting, the mortgage-backed bonds that contain their paper plunge in price, et voila, we’re back in 2008.

Rubino's article is timely, as we've lately been seeing a proliferation of signs that the global boom in housing is suddenly cooling. I've also recently encountered similar evidence that the housing market in my own pocket of northern California is weakening, and I'm curious to learn if other PeakProsperity.com are seeing the same in their hometowns.

The Global Housing Bubble

Housing, as they accurately say, is local. Conditions differ from region to region, making generalizations of the overall market difficult.

That said, the tsunami of $trillions printed by the world's central banking cartel since 2008 clearly found its way into the housing market.

The world real estate market is HUGE, over $200 trillion. That dwarfs the global debt and equity markets. So it's no surprise the central authorities did all they could to reverse the losses the GFC created for property owners.

As a result, many of the most popular locations to live are now clearly in bubble territory when it comes to home prices:

UBS map of global housing bubbles

The chart above displays the most bubblicious major cities around the world in red. But it's important to note that the merely 'overvalued' markets denoted in yellow, and even some of the green 'fair-valued' ones, are still wildly-unaffordable for the average resident.

For example, in "yellow" San Francisco, where the median home now costs $1.6 million, prices are well-above the excesses seen during the previous housing bubble:

And in 'fair-valued' New York City, the median household must spend 65% of its annual income on housing alone.

Is it any wonder that 70% of millennials who don't yet own a home fear they'll never be able to afford one?

Signs Galore Of Topping Markets

At the end of a speculative bubble, it's the assets that are most overvalued that correct first and correct hardest.

So we would expect that as the highest-priced real estate markets fare from here, the general real estate market will follow.

When we take a closer look at what's currently going on with the red-hot real estate markets noted in the chart above, we indeed see evidence supportive of Rubino's claim that the decade-long Stage One mania may now be ending.

Here's a spate of recent headlines about these cities:

Sure looks like Rubino's predicted Stage Two symptoms of rising supply and stagnating prices.

Local Signs, Too

As mentioned, I live in northern California, quite close to Santa Rosa. 

Things here aren't as nuts as they are in San Franscico; but it's still a moderately-affluent region with lots of second homes. It's one of the semi-frothy areas I'd expect to see cooling off in first should there be a downwards turn in macroeconomic conditions.

Located less than an hour north of San Francisco, residential housing prices here have roughly increased 2x over the past six years as the Bay Area has boomed. Supply has been in chronic shortage, exacerbated by the loss of thousands of structures burned during last October's destructive Tubbs fire.

But recently, for the first time in many years, realtors here are beginning to talk of a softening they're seeing in the local housing market.

Median sale prices dropped from May to June, which is counter to previous years. And several towns are seeing year-over-year declines in median price -- something unheard of over the past 7 years.

Meanwhile, the days-on-market ratio for properties is beginning to creep up.

Of the greatest concern to the realtors in my area: bidding wars are no longer happening. Houses are selling either at or below asking prices now. That's a *big* development in a market where houses have routinely sold for $50-100K+ above the listing price.

In a similar vein, I'm hearing evidence of the softening rents down in San Franscico and the East Bay (Oakland/Berkeley). Wolf Richter has done a good job chronicalling the substantial volume of newly-constructed units that have recently hit the market threatening to depress rents, and I've heard from a multi-family unit owner down there how landlords in the area are now finding their rents ~$500 too high for the market to bear.

This is all early and anecdotal data. It's too little at this point to claim definitively that my local housing market has entered Stage Two.

But I'm curious to hear from other PeakProsperity.com readers. What are you observing in your local markets? Are you seeing similar signs of concern?

Please share any insights you have in the Comments section below. Collectively, we may be able to add clarity, in one direction or another, to Rubino's hypothesis.

Prepping For Stage Two

Whatever the timing, Stage Two is an inevitability for today's ridiculously-overpriced real estate markets. It's not a matter of if it (as well as Stage Three) arrives, but when.

Given the data above, I think Rubino is correct in his assessment. Or at least, correct enough that prudent action is warranted today.

This makes even greater sense when considered along with the current trends of rising interest rates and quantitative tightening. Remember, home prices and interest rates have a mathematically inverse relationship: as rates go up, home prices must go down (all else being equal). And as central banks start withdrawing in earnest the excess liquidity that inflated property values to their current nose-bleed heights, expect further downward pressure on prices.

To drive the urgeny home even harder, we haven't even yet talked about the damage an economic recession and/or a painful correction in the financial markets would wreak on the real estate market. With the current expansion cycle the second-longest on record and our all-time-high markets looking increasingly vulnerable, it seems very unlikely we'll avoid at least one of those crises in the near to mid-future.

Here are worthwhile steps we recommend at this point:

  • Consider selling: If you're a homeowner and are not committed to remaining in your property for the next decade+, do some scenario planning. If prices fell 20%, how much of a financial and emotional impact would that have on you? If you have substantial equity gains in your home, Stage Two is the time to protect them. If you have little equity right now, make sure you're fully aware of the repercussions you'll face should you find yourself underwater on your properity. What will your options be should you lose your job in the next recession? Whether to hold, or sell now and rent, is a weighty decision; and the rationale differs for each household -- so we strongly recommend making it with the guidance of your professional financial advisor.
  • Raise cash: The vicious cycle that begins as Stage Two transitions into Stage Three is deflationary. Lower prices beget lower prices. During this period, cash is king. By sitting on it, your purchasing power increases the farther home prices drop. And when the dust settles, you'll be positioned to take advantage of the resulting values in the real estate market. We've written at length about the wisdom of this strategy given current market conditions, as well as how, while waiting for lower prices, you can get 30x the return on your cash savings than your bank is willing to pay you, with lower risk. Our recent report on the topic is a must-read.
  • Educate yourself: Yes, real estate is overpriced in a number of markets. But it has been and will remain one of the best ways available to the non-elites to amass income and tangible wealth. And as mentioned, when the next Stage 3 brings prices down, there will be value to be had -- potentially extreme value. If you aren't already an experienced real estate investor, now is the time to educate yourself; so that you'll be positioned to take informed action when the time to buy arises. Our recent podcast interview on Real Estate Investing 101 is a good place to start.

In Part 2: The Case For Starting To Build A (Small) Short Position, we conduct a similar analysis into the overvaluation and growing vulnerability of the financial markets (which are highly likely to correct much faster, sooner and more violently than the housing market), including the details on a recent short position we've started building.

The tranquil "free ride" the financial and housing markets have had for nearly a decade are ending. The string of easy gains with little effort are over now that the central bank money spigots are turning off at the same time the "greater fools" pocketbooks are tapping out.

For a brief time, prices will waiver, as investors remain in denial and refuse to sell at lower prices. But soon that denial will turn to panic, and prices will plummet.

Make sure you're positioned prudently before then.

Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

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27 Comments

thc0655's picture
thc0655
Status: Diamond Member (Offline)
Joined: Apr 27 2010
Posts: 1630
Watching like a hawk

House prices have never been higher in Philadelphia and houses are selling in an average of 11 days at the asking price in my neighborhood. Ground will be broken on our retirement home in August and be done by the end of the year. We can’t retire and move until May 2019. Ideally we’ll list our house about March 1, but I’m watching the local market closely in case it makes sense to list and sell sooner. The trade off is if we sell early to catch bubble prices before they collapse then we have to move twice and rent a temporary place to live until we can quit our jobs. It doesn’t make sense to sell to keep from losing $20,000 on the sale price only to have to pay $25,000 in rent in a temporary place. But we have signed with a realtor and will pull the trigger early if it makes sense. I’m on the same page with you. 

Uncletommy's picture
Uncletommy
Status: Platinum Member (Offline)
Joined: May 4 2014
Posts: 586
Opportunity knocks? For who!

Excellent recap, Adam! Strategies for the coming crunch will be in short supply as the FED starts to reel in some of its balance sheet. The Canadian situation is abysmal and appears to be following in toe-step. this recent article talks about savings as a lost art and the corresponding effects real estate prices will have:

https://www.theglobeandmail.com/investing/personal-finance/article-you-need-to-change-your-financial-game-plan-for-when-housing-cools/

Economists use the term “wealth effect” to explain spending triggered by rising prices for assets such as houses and stocks. “My joke is that if the value of your house went up 10 or 15 per cent a year, you go to your wife and say, you know what, we’re richer. Let’s go out and have a nice dinner ‘on the house,’ ” CIBC deputy chief economist Benjamin Tal said.

Mr. Tal believes that, with housing markets cooling and price gains harder to come by, it’s time to get back to active savings. The challenge here is to convince people that house prices won’t keep rising enough to lessen the need to actively save.

Grover's picture
Grover
Status: Platinum Member (Offline)
Joined: Feb 16 2011
Posts: 864
More Houses Listed

Good job on the article, Adam. I've seen many more "for sale" signs this year in my area than usual. I've also seen "price reduced" placards on some of those signs. One of my neighbors (2 houses away) just listed his place in May and it sold 2 weeks ago. I don't know if it was sold for asking price or not.

The Federal Reserve has signaled that they want to raise interest rates further. Are they trying to save pensions, give themselves some future wiggle room, and/or destroy the economy so Trump gets the blame? If mortgage interest rates go up 1%, it makes housing ~9% more expensive. Unless the economy is so robust that wages are increasing accordingly, housing has to take a tumble. I don't think wages are collectively increasing fast enough to allow a smooth transition.

Tumbling housing prices will be a blessing for all the Millennials who live in mom and dad's basement. It will be a curse for anyone who is thinking of downsizing. That's the way cyclical markets work. Someone is the bug and someone is the windshield.

Grover

Mazman's picture
Mazman
Status: Member (Offline)
Joined: Oct 21 2017
Posts: 3
Charlotte, NC

I look at these sites too much, at least the ones that keep predicting the housing bubble and when it pops. It’s simply impossible to predict when it crashes. It won’t be as big as 08’ but it will still be historic.

As for Charlotte, NC I doubt it’s in bubble territory. There is little doubt that the neighborhoods in southern Charlotte and near downtown are getting overheated though. I look at the St. Louis federal reserves housing price graphs. It shows a long trend in prices that basically rise close to inflation. So it was fairly healthy for a long time until the couple years before the crash.

It’s not the correction I’m worried about, but the over correction. It took a long time for the city to recover from that. So, what will round 2 look like?

pat the rat's picture
pat the rat
Status: Silver Member (Offline)
Joined: Nov 1 2011
Posts: 120
numbers

All this is just a number on a computer screen,we can take a 75%hit on the house before we turn negitive.When the market turns down that munch, there would no body to buy it.

richcabot's picture
richcabot
Status: Silver Member (Offline)
Joined: Apr 5 2011
Posts: 193
Real estate investing

This is an interesting counterpoint to the previous post about real estate investing.  Besides the reduction in value of the asset your income stream from rent may also go down.  

"rents across the SF Bay Area are starting to "cool off""

aggrivated's picture
aggrivated
Status: Platinum Member (Offline)
Joined: Sep 22 2010
Posts: 544
cooling rents not necessarily a counterpoint position

As I remember the cycle, the rents do cool, but then the lending market deep cools (hopefully not freezing) and many would be homeoweners become wanabe renters. The cooling rents warm fairly quickly.

As Adam well said, being in cash is important. When prices drop and defaults on mortgages begin, cash is king for buying at lower prices houses that can be rented. For most of the USA this means 3BR/2Bath houses. These can later be sold at a profit if/ when the selling mania cranks up again.

SagerXX's picture
SagerXX
Status: Diamond Member (Offline)
Joined: Feb 11 2009
Posts: 2240
Hawaii

Here on Maui, the RE market has been cooling for nearly half a year now.  It's a brutal market (local people competing with outside money looking to invest in rentable properties or just wealthy outsiders wanting to have a place to stay 1 month out of the year and either Air BnB or warehouse it the rest of the time).  The amount of Chinese money sloshing around here is stupefying.  

I was sniffing around to maybe buy something last year but it was just too harsh an environment (I bought the last time the market was at an all time high, and lost my life savings when my [ex]wife and I had to short sell during the GFC) so I backed away.  

During the search last year, I ended up on many realtors' mailing lists.  I keep getting emails even now about new listings...or -- for the purposes of this dicussion, old listings getting a new and lower price.

"Newly Reduced!"  -- "Motivated Seller!" -- "Hidden Gem at New Price!"  and so forth.  In my in-box every day now.  One just popped up:  "Price Reduced.  Easy to See."

When I was looking last year, I never saw those words in the subject line.  Now it's about half of all realtor emails.  

Hawaii is a strange and wonderful place and something of a special case compared to the rest of the USA.  But make of these anecdotes what you will...

VIVA -- Sager

 

Tude's picture
Tude
Status: Bronze Member (Offline)
Joined: Apr 1 2017
Posts: 34
East Bay and Oregon

I live in a less desirable area of the Easy Bay that has been "up and coming" for a while now. I am just a few exits up the freeway from Berkeley, and a fairly straighforward commute into SF (for the Bay Area). The bubble here far exceeds the last one price wise, but is softening pretty quickly. Last year a house sold in our neigborhood in one day for 100k over asking, for a sale price of 530k. This is a neighborhood of 1000sf homes built in the early 1950s in an unincorporated area. In the late 1990s you could buy a home here for between 100-150k. After the last crash you could buy a home here in 2010-2011 for around 200k.

Several homes are now on the market in the neighborhood for around 500k and not selling and I am seeing price reductions. Nothing but really nice/larger homes are selling fast, and those need to be priced correctly, and the bidding wars have stopped.

I am looking for a place in the Eugene/Corvallis area right now. Everything with land or downtwn with a large lot and a livable house priced at 400k and below seems to sell very fast, but that's it. Of course that's what I am looking for.

Things are definitely softening...but from stupid priced back to unaffordable and still too high.

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5752
Housing starts and applications both down

These are very noisy data series, so they could easily jump again next month, but the higher mortgage rates and rising house prices are a double whammy for home purchasers, especially first-time buyers.

Here’s the data from today:

Weekly mortgage applications fall 2.5% as buyers struggle to find affordable homes

Home prices are high, listings are lean and potential buyers are frustrated. There is plenty of demand, but it is not translating into home sales.

Mortgage applications dropped 2.5 percent last week, seasonally adjusted, according to the Mortgage Bankers Association. The weakness was driven entirely by a lack of buyers. Total volume was 12 percent lower than the same week one year ago.

Mortgage applications to purchase a home fell 5 percent for the week and were just 1 percent higher compared with a year ago. Home prices continue to rise at more than twice the rate of income growth, and bidding wars are the rule rather than the exception for entry-level homes. New buyers are clearly struggling, and that is apparent in the type of loans for which they are applying.

And:

U.S. Housing Starts Dropped Sharply in June

Starts declined 12.3% from May while residential building permits fell 2.2%

U.S. housing starts fell starkly in June after making solid gains the prior month, as single-family home construction and apartment building dropped from May.

Housing starts declined 12.3% in June from the prior month to a seasonally adjusted annual rate of 1.173 million, the Commerce Department said Wednesday. This was the largest monthly percent drop since November 2016, in part representing bounce back from stronger 4.8% starts growth seen in May.

Meanwhile, residential building permits, which can signal how much construction is in the pipeline, also declined, falling 2.2% from May to an annual pace of 1.273 million last month.

Economists surveyed by The Wall Street Journal had expected a 2.2% decline for starts, but a 2.2% gain for permits in June.

The sharp starts drop in June was also driven by construction declines in all regions of the U.S. for almost all types of housing.

This is how housing bubbles end…weaker volume, a final push higher for prices, then exhaustion sets in, inventories begin to climb while prices languish for a bit, and then prices finally slide.

Has it started?  There’s a good chance, especially if the Fed keeps up with the rate hikes.

Grover's picture
Grover
Status: Platinum Member (Offline)
Joined: Feb 16 2011
Posts: 864
Follow Up

I just spoke to my now ex-neighbor about his house sale. He said there were quite a few looky-loos. One person offered a low ball offer about 25% below his asking price. Only two other offers were submitted - no bidding war. He sold it for about 5.5% below asking price. He said his realtor "strongly advised" that he accept this offer because she saw "the market softening lately." Of course, the realtor only gets paid when the property sells. Was that the primary motivation or was that the truth? He was satisfied with the amount he got. I'm going to miss him and his family!

Grover

thatchmo's picture
thatchmo
Status: Gold Member (Offline)
Joined: Dec 14 2008
Posts: 461
Inflation in the 'hood...

I had the good fortune to meet Tude at the Sebastopol gathering in May, and came to realize that I was born in a house a block over from where she lives now.  I remember, at age 7, helping my dad hang drywall on the ceiling of the garage to create a family room (the house looks the same to this day)...but I digress....My father bought the house in '50 for around $6K, as I recall (about 1.5 year's salary), sold it in '62 for around $12K to build a home in a toney nearby town for around $35K.  His house is now worth, what, $1.5M?  I can't quite figger out the exponential function displayed here, but, phew!  Here on Kauai, well, Sager pretty much covered that one.  Zuckerberg is building down the street.  There goes the neighborhood...Aloha, Steve.

Mark_BC's picture
Mark_BC
Status: Gold Member (Offline)
Joined: Apr 30 2010
Posts: 492
Vancouver

I unfortunately missed out of real estate. I rent a room in my friends house because most of the time he isn't here. He recently sold that house in north van for $1.5 million. 70 years old, two story, bit of a dump. He bought a new McMansion up the block fir $3. All on debt. 

The market seems to be softening. Stricter mortgage rules were brought in , rates have gone up, and they seem to be clamping down on the Chinese money laundering that has been flooding in over the last 10 years. 

thatchmo's picture
thatchmo
Status: Gold Member (Offline)
Joined: Dec 14 2008
Posts: 461
Just for the record, my

Just for the record, my numbers are off.  Dad's memory is better than mine ('course, it was his money!): he paid $9750 for the original house, and sold it for around $18K.  He still remembers the name of the original RE agent- Pierre Alinio!  92 years old in a couple weeks....Aloha, Steve.

lholton's picture
lholton
Status: Member (Offline)
Joined: Jan 22 2017
Posts: 1
Oregon

I have been watching the market ( Portland, Or and the surrounding areas) for the last 6 years and check in every few days or so. 

Houses close to the city in the mid range sell quickly but recently at or maybe slightly above asking (not $20-50K above asking like in recent years).  Mid range houses in the surrounding areas (0-40 miles) are dropping 5-15K off asking for the first time I've seen.   Sales in the high end market of 1 million or more have slowed in town but crashed in the surrounding area and can sit for over a year.   I've seen $1-2 mil houses drop 50% from orginaly asking price 40 miles outside town.

 Just my observation.

Adam Taggart's picture
Adam Taggart
Status: Peak Prosperity Co-founder (Offline)
Joined: May 26 2009
Posts: 3103
China taking action to cool housing prices

Developments are underway in China that should dampen the housing market there:

The practice of rectifying market order stems from a special action by seven ministries. On June 28, the Ministry of Housing and Urban-Rural Development and other seven ministries jointly issued a notice, deciding to carry out special actions to control the real estate market chaos in 30 cities including Beijing and Shanghai from the beginning of July to the end of December 2018.

The recent policy is a continuation of this action, and the scope has exceeded the above 30 cities. For example, Henan Province issued a document on July 9th, which intends to regulate the sales behavior of commercial houses in the province, maintain the order of trading in the real estate market, and protect the legitimate rights and interests of the people who buy houses. Shaanxi Province also issued a detailed rule on July 6, standardizing the fair process of commercial housing. For the first time, Zhejiang has launched a “double random” spot check with the special inspection of real estate development enterprises as the entry point.

This crackdown, plus the urgent need of developers to offload properities (i.e. spike supply) in order to raise more capital, is expected to bring prices down:

CITIC Construction Investment also said that the market supply scale will be further released in the second half of the year. On the one hand, the housing supply enterprises began to usher in the peak of supply in the third quarter, and on the other hand, in the environment where the financing environment is becoming stricter this year, the housing enterprises are out of cash. Streamline considerations will also accelerate the push to achieve cash withdrawals. This will also bring the heat of sales in the real estate market in the third quarter to continue.

Yan Yuejin, director of the think tank center of Shanghai Yiju Research Institute, holds different views. He told the 21st Century Business Report that the third quarter is the time when the market is facing the most bad news. The transaction volume of the real estate market may decline, even negative year-on-year. In the fourth quarter, due to the impact of annual performance, companies are likely to accelerate the pace of pushing goods and promote transaction volume.

 

yagasjai's picture
yagasjai
Status: Martenson Brigade Member (Offline)
Joined: Apr 18 2009
Posts: 63
First Time Home Buyer Question

This post speaks to the very question I have been debating for the last several years. I am a low-to-moderate income member of this forum, very interested in building resiliency and positioning myself as best as I can for the long term future. I would like to own my own home. I am currently renting in the area I would like to live. However, I will need a loan in order to buy something. Whether I do it now or wait for prices to drop. In a way it seems better to try to lock in a lower interest rate sooner than wait for prices to come down, which may mean a smaller loan at a higher rate. I am working on qualifying for a NACA loan, which does not require a downpayment, and allows you to buy the interest rate down as far as .5%! I am also looking into the possibility of buying a multi-family home so I can have some rental income to offset the loan. I am interested to hear if others in this forum are in a similar situation and how you are approacing the possibility of positioning yourself to own. I am also interested to hear what people think of a NACA loan, vs. conventional first-time home buyer loans. I know that CM advocates for people getting set up well in advance of the collapse, and as I think about it, going through a first time home buyer class, realizing that having clear title to a property matters and if the system is in chaos, it might not be easy to get clear title. Things like that. So I guess I am leaning towards trying to buy something sooner than later. But would very much like to hear what others are thinking, particularly those who are in a similar situation. 

Michael_Rudmin's picture
Michael_Rudmin
Status: Platinum Member (Offline)
Joined: Jun 25 2014
Posts: 853
What area, what cities nearby?

Sometimes there are combinations that can make things easier rather than harder.

But it is highly location dependant.

That said, loans are a horrible idea if everything goes kaplooie... but not getting loans is how the magisterium loots the working class of their entire earnings, as long as it doesn't go poom.

I know. I'm an engineer in construction who never got a loan, still living in an (owned) mobile home on rented land, 47 years old and never spending wildly, always trying to save.

That's not the whole story... but my observations are boots-on-the-ground valid.

Mazman's picture
Mazman
Status: Member (Offline)
Joined: Oct 21 2017
Posts: 3
Is it walkable?

Yag, one big question is location. Is your location at least some-what walkable or have decent public transportation. There will be a signifcant need for walkable urbanism now and in the future. Obviously, the lots might be expensive, and depending on the city could be in overheated areas or even bubble territory. So it might not be the best time to buy.

Just know in the long run, walkable locations will be highly sought. Look for old street-car neighborhoods or areas laid out before the 1950's.

Finally, it sounds like you want to buy a duplex or triplex of some kind. That's great to start out, just consider if you can further expand like adding a cottage unit in the back-yard. Gives you a little extra income and depending on how things unfold, that little cottage might end up as your home. All depends on cost of construction, market and yadda... yadda. Good luck!

skipr's picture
skipr
Status: Silver Member (Offline)
Joined: Jan 9 2016
Posts: 143
walking

I'm not driving a car these days, which is a good thing in the long run.  I'm searching for a place to relocate to, and one of the must-have requirements is being able to walk, bike, and have accessible public transportation.  The city I live in (Tucson) now has the highest crime rate in AZ.  Using their bus system has been an education in reality.  I always wonder how those people will deal with what's coming down, especially those with babies stuffed in multi-seat baby carriages.  Throw in the rapidly depleting water supply and a power outage when another record high hits (it's 112F today) and it will be insane.  Add to that the fossil fuels falling off the Seneca cliff and there will be a massive exodus out of the SW.  Trump better finish that wall of his (the new iron curtain?) fast to keep all of us gringos in.

TechGuy's picture
TechGuy
Status: Gold Member (Offline)
Joined: Oct 13 2008
Posts: 428
First Time Home owner

yagasjai Wrote: "I am currently renting in the area I would like to live. However, I will need a loan in order to buy something. Whether I do it now or wait for prices to drop. In a way it seems better to try to lock in a lower interest rate sooner than wait for prices to come down, which may mean a smaller loan at a higher rate. "

1, Focus on increasing your income so you can save more money: Obtaining new\better skill sets, applying for overtime, or working a second part time job, or start a side business. The more income and savings you can establish the better off you will be.

2. Only buy during a recession. In most cases, Central banks drop interest rates during recession to stimulate the economy.

3. Start researching  how to retrofit, or learn about building a new home that is energy efficient. You really don't want to buy something that is going to cost a small fortune to renovate or needs to be torn down to make it energy efficient.

4. Be sure the area you are looking to buy doesn't have restrictive zoning regulations. Ideally you want to be able to operate an outdoor wood boiler so you can heat your home using biomass or coal if there is supply issues with Oil, NatGas, or electricity.Some towns are banning outdoor boilers and even wood stoves (FWIW: I don't like the idea of using wood stoves since it increase the chances of fire and you be treking ash & debris, as well as extra dust from smoke everytime you start the fire.

5. it would be crazy to buy in the US SouthWest Do limited water supplies and extreme temperatures. A ideal place is somewhere with a moderate climate: Mild winters, and not excessive summer temperatures. Plenty of rainfall (ie rarely in a drought) Away from coasts (hurricanes) and Tornado alley. Away from any nuclear power plants, Chemical plants, or potential military targets (ie Miltary base, Airport, Defense contractor Mfg facility, Federal gov't offices or property). 

6. low to Moderate taxes; You don't want to waste your valuable savings\earnings on paying taxes. Best areas are usually rural/semi-rural with few or no public schools.

Best approach it so scout out potential spots that fit your criteria, using vacation time. You can use google maps while at home to learn about potential areas. See what stores and businesses are located there. Look online for properties for sale (ie Realtor.com) to get an idea on land and home prices. When you think you found a potential spot, build a list of properties you interest you and then go to visit the areas during your vacation time. Also monitor the areas local weather reports, local news (ie does it have a crime problem? does it have a infrastructure problem: ie bad roads, pension issues). 

FWIW: its likely going to take you several years to find a spot that meets your criteria, and during that time, you should be increasing your savings.

Some Important Properties characteristics:

1. Should be relativily flat so you don't have to deal with a steep driveway or need excessive excavation to build a home, or difficulty getting a modular home built on site. Also want a sufficient flat area to grow crops, add outbuildings.

2. Should have lots of trees that you can harvest for firewood or construction materials. Trees can also be used to hide your home from the street if you are concerned about security. Generally criminals perfer to find easy targets that they can spot from the street.

3. On a paved road that does have any wooden bridges, and the road should be on steep hill. You may need to frequency use the road in bad weather. In a long term economic crisis, funding for roads will likely shrink and if a small bridge is damaged it might take years to get repaired if repaired at all (I've seen it happen when a small bridge was damaged and impassible and left unrepaired for years stranding people on the otherside). 

4, Access to ground water & land that will perk. Ideally find property that already has well, and access to grid power. Before you sign off on buying the land, pay to get the perk test for a septic system. If your buying a property with a home, make sure the septic is up to spec (get an inspector to examine the septic system).

5. Make sure there are no leans on the property (ie back taxes) & make sure no one owns mineral rights on your land. Check for any easments on the property, Can you build a driveway to the roard? does a neighbor have a right of way easment? Are there any zoning or conservation easements that will prevent you from building your new home, or retrofiting (ie historic building)? 

6. How close are the stores\medical facillities? Is there a local building supplier (ie lumber yard, stone\concrete) Are there local building & other trademan (plumbers, electricians) available. It can be expensive if you need to truck in materials that are distance from your property. 

Job changes:

Presuming you relocate a a rural\semi rural area, What job opportunities will you have available? Do you need to retrain yourself so you can find a job that you can work at home or find a local job?  When you find a region you like, besides looking for property look to see what jobs opportunties are available that match your skill sets, or determine which jobs you can retrain with in a reasonable period & without the need to spend big $$$ for training classes\certifications. Try to take advantage of free online learning presentations (For instance Youtube is loaded with free training videos )

 

Homesteading Skill sets:

While your waiting to find an ideal property start spending time learning useful skills to be self-reliant. Instead of watching TV, watch homesteading videos. Plant a garden with different types of edible plants: Tubers (potatoes\carrotts), beans, corn, wheat, melons, etc. Even if your living in an apartment, you can grow potted plants on a balcony or window sill. Learn how to build and maintain fences. Rasing and slaughtering livestock\poutry.  what ever skill deficients you think you have that will help become self-reliant. Your going to need to learn some skills anyway. So why not make good use of your time until you are able to afford property and find an idea property. 

 

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Michael_Rudmin
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Posts: 853
One more affordable solution

Find out what areas around you can have a mobile home (not permanent) or permanent. Be sure to confirm what size lot is necessary. Then look for a piece of property there on deep discount. Be sure to look for tax sales, too. When you get the property, then build a septic system with two split inputs, going to two possible house locations.

Then buy a cheap mobile home for $1000 -$3000 + $1500-$2500 moving costs; and put it in at the less desirable location.

No kidding, they go for that little. When people have to pay $500 rent per month that it doesn't move, some lowball offers get taken.

Then step by step put down a concrete slab on the other one that CAN later serve as a foundation for your real house; then save up to build a foam insulating concrete form house on the slab, without debt. About the time your concrete house is ready, you'll be more than ready to move out of the mobile home. Then you can either sell the mobile home, or fully rebuild/ repair the mobile home as a fixed home.

Either way, you've done it for minimum cost.

Doug's picture
Doug
Status: Diamond Member (Offline)
Joined: Oct 1 2008
Posts: 3176
I've been reading the replies...

...to your questions.  Frankly, if I were to try to take all that advice into consideration at once I would be massively confused and realize that I would have to immediately eliminate most of the US from consideration.  No coasts, no tornado alley, no arid areas, no extreme weather, near good water, low real estate prices, on easy transportation corridors, good employment possibilities, etc. etc.  Compromise becomes necessary.

In the interest of keeping it simple, I would make only a few suggestions.  First and foremost, live beneath your means.  Never believe what a real estate agent says you can afford.  You cannot have "clear title" to land unless you own it outright.  If you must finance, get the lowest interest rate and shortest term possible.  Don't wait around for a recession that may be a decade or more in the future.  Relying on what so-called experts tell you about our shared economic future is highly speculative.   The sooner you buy, the sooner you start building equity.  The lower you buy, the faster you can build capital.

In general the region that would be most friendly to your economic well-being would be the east that was settled before the industrial revolution, gets good rain, has an in-place sustainable infrastructure and is forested with hardwoods.  Distances are shorter to most things you need and there are folks around who have those old time skills.  Plus, there are many poor areas where real estate is still cheap.

Of course, all that depends on whether you have a reliable, if not highly lucrative, source of income.  If you are young enough you may have time to learn a trade and begin earning a living from it.  If not, you will have to apply your already learned skills in an area where they are salable.

And, of course, beginning on a new property means lots of hard labor before it is self sustainable.  Be honest with yourself.  Can you work a full time job where you earn your living and then come home and work hard to develop the homestead.  It is a long term proposition.  Where will you be healthwise 25 years from now?  Can you sustain a high level of physical and mental functioning for that long?  And then, what about kids and family?  It turns out kids are expensive.  Who knew?

Bottom line, set your expectations of income low and be willing to work your ass off.  There is no easy way out unless you are born wealthy or stumble upon wealth along the way.  Those two options are unlikely for most of us.  

Finally, be wary of sustainability gurus.  Many years ago I became enamored of Eliot Coleman, the ag guru.  It took me a while to realize that he has built his mini empire on the backs of very cheap or free labor of youthful idealistic summer interns.  That pattern seems to be true of virtually all of those who offer a way of sustainable living.  Look behind the scenes.  As "deep throat" wisely advised, "follow the money."

Years ago I visited Shelburne farms in Vermont.  They do some experimental sustainable agriculture there that is quite impressive, until you realize that it exists on a former Vanderbilt estate that has long term trust income to support its ventures.  Its a stunningly beautiful place on the edge of the Green Mountains overlooking Lake Champlain with the Adirondacks in the background.  Most of us can't pick up that kind of place on the cheap or have the staff and infrastructure to keep it going.

TechGuy's picture
TechGuy
Status: Gold Member (Offline)
Joined: Oct 13 2008
Posts: 428
Rudmin Wrote: "Then step by

Rudmin Wrote:

"Then step by step put down a concrete slab on the other one that CAN later serve as a foundation for your real house;"

Bad idea in my opinion:

1. If you planning a slab construction you need to figure out all of the drain locations before pouring the slab. You would at least need to have the home plans draw up and get a building permit before you can pour the slab. Also need to work out the details of where the septic tank and drain field will need to go.

2. A home with a basement is preferrable since you can run all your plumbing\electrical\HVAC systems and be able to service them. A basement also serves as an emergency shelter in case of severe weather or war. A basement usuallys stays cool during the summer heat, so if end up on a grid down you have a place to go to avoid the heat. I am aware that basements are always an option (ie Florida do to water table & Texas) but neighter of those states are a good place to build a homestead, do to weather (heat & storms) as well as large populations & lack of clean well water. 

If you go with a Slab, make sure you put foam insulation & vapor barrier below it before you pour the slab. Installing radiate heating (pex tubing) is also a recommend.

 

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Michael_Rudmin
Status: Platinum Member (Offline)
Joined: Jun 25 2014
Posts: 853
Tech Guy, Doug, *sigh*

To your points: 1) I thought that what I had put before, about splitting the input for wastewater to your two locations, implied that yes, you put your septic for both in at once. In fact, it also implies that you make sure your wastewater can handle both. That does cost a little more up front, saves a lot down the road.

And your building permit is going to have to be good for a stand-alone slab that also happens to be good enough for a house later. Design it yourself first, then take the rough design down to permitting, and see if that's even possible. Some counties may prohibit doing things that way; some won't care.

2) Agreed, a home with a basement is preferable, but as someone else pointed out it is a good deal more expensive. If he wants a basement, he should do what he wants... if he can afford it. That's a design detail he needs to decide on himself.

That said, a lot of property sometimes is on a slope; so if you can put the mobile home on a flat, and the basement slab on the basement level of the house, some ways down the slope, and the septic field farther down... that would be ideal, I'd think. But that's all details that come with specific design. Sometimes you go to install septic and the health department says "you can only put the septic on the flat up top"... in which case you'd probably better not buy that property in the first place, because you'll then need to get approval for an alternative septic system... which is far more expensive.

3) Good points about slab construction; my son is working on a house design, and we've done ALL that.

Also, Doug: I certainly hope he doesn't take ALL the advice and try to do it. I expect him to pick through it and decide which is appropriate to his situation, and then from that decide how much of it is worth something. He has to live his own life, and surely will make his own decisions, some of them right, some of them wrong, and of the right ones and wrong ones, some of them he'll get lucky or unlucky, and the right or wrongness will turn out to have opposite benefit. There's no guarantee with any of this.

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Adam Taggart
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yagasjai
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Posts: 63
One More Question

Thanks to all who posted responses to my question- you've given me some good points to think about. The subsequent question I have is that I am realizing that I read years ago in Mike Maloney's book that at a certain point, housing values will drop and PM values will rise, such that if you put money into PMs now, down the line the shift in values will allow you to buy one or more houses outright. This has been in the back of my mind for a long time now, and I am wondering what people think of this strategy for someone who might otherwise need a loan?

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