Real Estate Crash thread

[4matic]

Fedex warns, GE warns, Sternlich warns:

Barry Sternlicht, a billionaire investor and the CEO of Starwood Capital Group, told CNBC on Thursday that the Fed is “attacking the economy with a sledgehammer, and they don’t need to.”

Sternlicht made the case that the Fed’s aggressive interest rate hikes, along with healing supply chains and cooling commodity prices, have already done most of the work to control inflation—as evidenced by the $7 trillion of wealth that has been lost in the stock market so far this year.

In his view, this means the central bank doesn’t need to continue its aggressive inflation-fighting policies.

The problem, he said, is the data central bank officials are using to back up their aggressive stance is just too old—and it’s distorting their understanding of economic reality.

https://fortune.com/2022/09/15/will-...ry-sternlicht/

[dan_pdx]

Fedex warns, GE warns, Sternlich warns:

Barry Sternlicht, a billionaire investor and the CEO of Starwood Capital Group, told CNBC on Thursday that the Fed is “attacking the economy with a sledgehammer, and they don’t need to.”

Sternlicht made the case that the Fed’s aggressive interest rate hikes, along with healing supply chains and cooling commodity prices, have already done most of the work to control inflation—as evidenced by the $7 trillion of wealth that has been lost in the stock market so far this year.

In his view, this means the central bank doesn’t need to continue its aggressive inflation-fighting policies.

The problem, he said, is the data central bank officials are using to back up their aggressive stance is just too old—and it’s distorting their understanding of economic reality.

https://fortune.com/2022/09/15/will-...ry-sternlicht/

Wow, someone who loses money when rates go up thinks rates should stop going up.

[east or bust]

I think most homeowners are probably ok with low fixed rate mortgages. If you’ve got to move, however, you’re SOL.

Or are a first time buyer.


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[4matic]

Yes, but, I'd agree in some respects. Is/was the Fed so wildly wrong that now they have to go crazy? What happened to running above trend that they spoke about at length for months. What if it is transitory and they're missing it on both sides?

[dan_pdx]

All fair points, but does this Sternlicht guy have information or analyses not available to the Fed? Seems unlikely, and if he does, maybe he should share with the Fed. I don't pretend to know the right answer, and I'd like my brokerage account to continue appreciating as much as anyone else, but I do believe the Fed is motivated to give the economy a smooth ride, while Sternlicht just wants to QE spigot to open up again. Seems like the Fed has a better chance of getting it right.

[Mazderati]

Empty punditry is abundant but one salient nugget from a few months ago likened the delayed impact of rising rates to an adjusted thermometer. With mortgage rates double recent lows I'm sure hoping prices come down in a meaningful way.

[altacoup]

It’s beyond obvious that the majority of inflationary pressure has been due to unprecedented supply chain issues in a globalized economy. Unless the Fed can reverse China’s zero Covid policy all they’re doing is hurting middle class and below Americans. Maybe international corporations will finally realize that doing business with China is suspect. I’d cheap labor it’s in need it’s obvious that central and South America has tons.

[wolfelot]

WHY is China trying to go with a zero COVID policy? What are the benefits? It’s not like Rona has a 10% mortality rate.

[summit]

WHY is China trying to go with a zero COVID policy? What are the benefits? It’s not like Rona has a 10% mortality rate.

The Emperor has spoken. The Emperor must not appear weak.

[yeahman]

Or are a first time buyer.


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Do those still exist?

[shroom]

if you’re not first you’re last

[smmokan]

There’s a correction coming.

Not sure it’s a crash. At least ten percent. Twenty in some markets.
The bidding over asking (which was high listing lately) is going away.

DOM is going up. Inventory isn’t back. Yet. It will be.

From consistently watching the listings in a handful of markets across the country over the last several months, it certainly seems like inventory is on the rise, and there are price cuts left and right. In our town (Niwot) outside of Boulder, I can't remember ever seeing this many homes on the market at once. There are a bunch of sellers in our neighborhood who put their home on the market recently to try and take advantage of the ridiculously high sale prices from earlier in the year, but they missed the boat and their over-priced home is now sitting with no interest.

It'll be interesting to see what happens over time with all the homes purchased in the last year or so that will likely lose equity, and with the buyers who are stretched to pay their monthly mortgage on an over-priced house with a high interest rate.

[Name Redacted]

House (SFH) down the street from us has been on the market for $1.5m for over a month. Nice place too, probably worth it, at least in this market. Funny, another condo in town that is on the market for $1.5 is half the square footage, has a crazy HOA, and is nowhere near as nice. But the location cannot be beat, at least on this side of the county. My friend used to rent in that building for like $500 per month a decade ago. Location location location.

[Brock Landers]

Fedex warns, GE warns, Sternlich warns:

Barry Sternlicht, a billionaire investor and the CEO of Starwood Capital Group, told CNBC on Thursday that the Fed is “attacking the economy with a sledgehammer, and they don’t need to.”

Sternlicht made the case that the Fed’s aggressive interest rate hikes, along with healing supply chains and cooling commodity prices, have already done most of the work to control inflation—as evidenced by the $7 trillion of wealth that has been lost in the stock market so far this year.

In his view, this means the central bank doesn’t need to continue its aggressive inflation-fighting policies.

The problem, he said, is the data central bank officials are using to back up their aggressive stance is just too old—and it’s distorting their understanding of economic reality.

https://fortune.com/2022/09/15/will-...ry-sternlicht/

Low inflation is measured by losses in the stock market? How about measuring inflation with…like…inflation measurements. CPI. Prices. Yes it’s a lagging indicator. But it’s last month. And it isn’t going down yet (I think it will but the evidence that inflation is actually lower because the fucking stock market is down is the silliest shit I’ve heard in a while).

[4matic]

I don’t think that’s what it said.

[Dantheman]

It’s beyond obvious that the majority of inflationary pressure has been due to unprecedented supply chain issues in a globalized economy.

Seriously. The cost just to get a container across the Pacific went from something like $5k to $25k. Add in diesel being way up and there's most of recent inflation.

I’d cheap labor it’s in need it’s obvious that central and South America has tons.

It would take, what, 30 years to build up that capacity?

[Mani_UT]

https://fortune.com/2022/09/15/will-...ry-sternlicht/

"Starwood Capital’s real estate investment trust (REIT), Starwood Property Trust, owns some 130,000 apartments nationwide, and Sternlicht said that although rents have jumped 20% “almost everywhere” over the past year, the pace of rental growth slowed dramatically in recent months."

Sounds like the guy responsible for crushing a hundred of thousands plus tenants under insane rent increase doesnt want to have to walk them back. I'd say push harder Mr Fed and bring RE prices back to reality.
I increased rent on my tenants 2% this year. 20%? Fuck this guy.

[sirbumpsalot]

It'll be interesting to see what happens over time with all the homes purchased in the last year or so that will likely lose equity, and with the buyers who are stretched to pay their monthly mortgage on an over-priced house with a high interest rate.

With so many cash buyers and the rest locked into 2.5-3% mortgages who is gonna be stretched and hurting? Recent buyers are likely locked in their homes for years. Most people buy their houses to LIVE in...not flip or sell in 1-2 years.

[4matic]

"Starwood Capital’s real estate investment trust (REIT), Starwood Property Trust, owns some 130,000 apartments nationwide, and Sternlicht said that although rents have jumped 20% “almost everywhere” over the past year, the pace of rental growth slowed dramatically in recent months."

Sounds like the guy responsible for crushing a hundred of thousands plus tenants under insane rent increase doesnt want to have to walk them back. I'd say push harder Mr Fed and bring RE prices back to reality.
I increased rent on my tenants 2% this year. 20%? Fuck this guy.

I agree. The Fed has always leaned toward growth. I remember the Volker recession well. It’s a different economy now with wealth tied much more to asset prices.

[Kevo]

I think the rent increase phenomena can be attributed to several different factors.

The eviction moratorium artificially reduced the supply of rental units for a year and a half. Many people moved during covid, which meant that demand was higher than normal for new rental contracts.

In addition, the labor shortage pushed up wages for the people who rent at the same time that the Fed was red lining the economy with record low rates and MBS purchases, leading to higher real estate prices and driving increased demand for real estate speculation. HIgher real estate prices also contributed to higher rent prices. The federal reserve was on a bond buying spree throughout this time period, which allowed institutional investors to issue billions of dollars worth of bonds at artificially low rates that they otherwise wouldn't have been able to realize. That bond capitol sought out rent and went on a RE buying spree.

This was all happening while the foreclosure moratorium was also in place, which meant that the supply of real estate was artificially reduced. COVID unemployment benefits caused many renters to have higher income on unemployment than they had in their previous jobs, which kept the number of total households high during a time that otherwise would have seen people moving in with family and friends to save money.

Increased demand and reduced supply lead to significant price increases, which formed a new baseline for rent.

TLDR- I propose that there were many contributing factors on both the supply and demand side of RE that artificially manipulated the market starting in Spring of 2020.

[Ted Striker]

Without a doubt

[dunfree]

blaming it all on Covid is fucking stupid. Many of these trends predate it

[altacoup]

Seriously. The cost just to get a container across the Pacific went from something like $5k to $25k. Add in diesel being way up and there's most of recent inflation.



It would take, what, 30 years to build up that capacity?

If it was a concerted effort i bet more like 10-15. But business is highly entrenched in Asia. However central/south America is more culturally similar to Europe and NA (colonization) and hence probably easier to work with. Bonus is that it’d stabilize those countries, reduce immigration and maybe quite the Magatards. There’s massive corruption in those countries but also massive potential in the people. Stabilize them and I’m sure they’d prove themselves. Mexico already has significant industry, cars, industrial level electrical devices, massive agriculture. No reason they can’t make what’s made in China. Plus they arguably have more natural resources. Mexico is a sleeping giant and we’d (people on both sides of the border) be better off if it was stable. As china has developed a middle class I’d guess wages have now risen to similar levels as Mexico. Non real estate tangent over.
My house in cottonwood heights has decreased in estimated value this year after over doubling in the last 5.

[Dantheman]

Mexico is a sleeping giant and we’d (people on both sides of the border) be better off if it was stable.

Agreed 100%. Economic development will work far better than anything else to slow/stop emigration from Central/South America. If only we could go back in time, end the War on Drugs, and avoid huge swaths of Mexico becoming a narco state.

[4matic]

blaming it all on Covid is fucking stupid. Many of these trends predate it

Not directly. Part of rent inflation is the number of new first time leases at higher prices.