Guess The City That Saw Home Prices Fall $200,000 in Just 90 Days

Obsession would be an understatement of my hunger to not make the same mistakes I made in 2008-2011. I was only 26 years old when the mortgage markets and real estate markets began to crash in 2008. As most realtors and loan officers left the market I doubled down and was fortunate to go from an unknown small-town loan officer to being named 2010 the Rookie of the Year for the entire Mortgage Industry out of 500,000 professionals.

I do not say this to boast but rather as inspiration for all of you on how you can use a recession to position yourself to rise from the ashes of a bad economic situation if you want to. If a kid from Temecula from a middle-class family can do it, you can do it if you stay curious and focused. Think about it, you have no problem getting up at 5 am to make a flight to head out on vacation, but most cannot accomplish this feat even though that is what it takes to truly become wealthy.

I take the time twice a month to share with you in simple language all my research in simple terms … so let’s get to it.

The monthly rate of home price decline is now rivaling that seen during the Great Recession  -  the question now facing housing analysts is how long it will continue to do so, and how far off peaks prices will drop. We know there were three factors that caused the Great Housing Recession:

1. Bad Lending Programs where more than 50% of all mortgage loans did not verify a borrower’s income and 40% of all home purchases in 2005-2006 were investment property purchases with less than 20% down.
2. Overbuilding by home builders building homes for a population equal to the size of the baby boomer generation even though Gen X (homebuyers at that time) were 10M smaller in size.
3. Unsustainable price growth saw homes in many markets going up 100% in value in 5 years.

This year, July and August marked the largest single-month price declines seen since January 2009 and rank among the eight largest on record, according to a report Monday from Black Knight.

Home prices fell in 97 of 100 markets across the U.S., with monthly declines averaging around 1%, which is an annualized price decline of 12%.

Mortgage rates jumped by 4% from 3% in January, peaking at 7% in the last week of September. This caused the national average mortgage payment to increase by 70% over the same period of time.

It is important to note that of the three factors that caused the Great Housing Crash of 2008 only 1 is present in today’s market (home prices increased by about 60% from January 2019 to June 2022). However, there was a significant under-building compared to the HUGE population of the Millennial Generation (30% larger than Gen X).

Mortgage lending has been so strict over the last 12 years resulting in over 90% of all mortgages made had the borrower’s income verified through tax returns and investment property purchases made up less than 15% of all mortgage loans over the last 5 years.

What we are experiencing is not an overleveraged homebuyer with little to no equity and stuck in a 7% mortgage but rather homeowners wanting to just stay put, loving their 3% interest rate. Homes are being listed for sale and down again this month, and inventory levels are not skyrocketing as they did in 2009, because landlords are cash-flowing very well thanks to their low fixed rates and high rents. Rents are remaining stable since more and more would-be buyers are renewing their leases due to be priced out of the market due to 6% interest rates.

It is very important to understand that many housing markets are holding up very well, whereas others are getting hammered. San Jose takes the top spot, with the average home price falling by $200,000 in just 120 days. The chart below shows the markets experiencing the highest % decrease in average home price. The West Coast always corrects before the rest of the country.

So you are probably asking yourself how the heck can I make any money in the markets when home prices are falling and I have no clue when the bottom will come, right?

Well, because I am a nice guy, I am going to tell you how I plan to play this market based on all the data. Remember, this is NOT financial advice.

First, home prices are going to continue to soften until we see a Fed pivot; now this will happen once we start to see nasty four-quarter 2022 corporate earnings and unemployment tick up. We saw the stock market take out its June lows last week and we are currently experiencing a small bounce higher. However, do not get caught in this bear trap, as I truly believe we will see the stock market move up slightly off last week’s lows, but more pain is in store over the next few months once the midterms are over. You can make money by cautiously purchasing shares of ETFs that go up in value as the stock market indices fall lower. Some examples of these are SDOW, SPXU, and SQQQ. Now you need to do your own research, of course, but one way of making money in a falling stock market is by owning shares in those ETFs.

As I have been stating since Spring, I expect most housing markets to correct by 15% to 20% from the Spring 2022 peaks, which would take them back to Winter 2020 levels. Now markets that saw HUGE pandemic growth like Austin, Big Bear, Boise, Tampa, Nashville, Denver, St. George, and Salt Lake could see 25%+ declines.

Now, in terms of owning real estate, what I am looking at doing is purchasing investment properties both long-term and short-term rentals in markets that are seeing population growth, especially in colleges where student housing is an issue. There are a number of markets in the Midwest and Southeast where you can get $500/mo per room near a college. There are several properties I am looking at that are 4BD to 6BD and are under $350k. For anyone that gets Pre Approved by our office to purchase an investment property, I will share these specific cities with you in AL, AR, OH, MD, TX, TN, and KY.

Now for Airbnb locations, I can still get a cash-on-cash return of over 10% in markets in Pigeon Forge, Gulf Shores, Orange Beach, Santa Rosa Beach, and several others with 20% to 25% down. This is before all the tax advantages of using strategies like cost segregation and bonus depreciation.

I expect mortgage rates to stay between 5.75% and 7.5% over the next 9 to 12 months. Then I expect rates to drop below 5% by the end of 2023 or 2024.

If you are interested in taking the first steps towards purchasing an AirBnB property and meet the criteria below please click the link below to schedule a time to chat with my team.

Qualifications:

• 20% Down Payment (you can use a home equity line of credit attached to a current property you own for this)
• 700 Credit Score
• Can prove your income on paper or have 25%-30% down to look at Stated Income programs
• Looking to buy in: CA, FL, TX, TN, SC, AR, ID, AZ, NV, GA, or AL

For anyone that is preapproved by our office, I personally provide a customized real estate market report for that city going over expected home value growth, Airbnb market rating, and a number of other factors for FREE!

If you have questions, do not hesitate to email me at: decker@modernteam.com as I personally respond to all emails, even if it takes me a few days to get back to you. If you have found value in this content, please share the link to this post.

Also, make sure to follow me on Instagram @thebriandecker where I post daily content on all things investing and housing.